David Fuller's view

The wonderful thing about price charts is that they will show us when a move is not only overdone but also beginning to reverse.  Fuller Treacy Money has been posting the Cumulative Commodity Index (weekly & daily) for months, because it was ranging just above previous support near the 500 level.  The big institutional trading houses were bearish and short everything from precious metals to agricultural commodities.  Central bankers and pundits everywhere were talking about the global economy’s deflationary risks. 

This view had been correct since 1Q 2011 and a clear break beneath 500 by CCI would have opened the door for another fall.  However, the longer it held near that level, the more likely it was to move higher.  The last three weeks have been one-way traffic, with shorts scrambling to cover and new long trades being reopened.  How long will this last?  Keep an eye on the chart. 

Robusta coffee long reopened. 

I was shaken out of my earlier Robusta coffee position (weekly & daily) when my slightly in-the-money stop was triggered by this month’s earlier move back beneath 1800. I should have come back in as it quickly steadied, not least as I had mentioned the story.  It is mainly about the drought in Brazil which has powered the Arabica contract higher, but the Robusta contract had seen a lesser move and heavy rain in Indonesia was threatening the crop. 

I am wary of paying up in markets which look somewhat overstretched in the short term.  However, if there is a fundamental driver of potential consequence, as we are seeing, a self-feeding momentum move can easily occur.  Anyway, I repurchased the March Robusta contract at 1957 late this afternoon (GMT), including spread-bet dealing costs.  If it is strong tomorrow, following Arabica’s strong close tonight, I am likely to introduce a slightly in-the-money stop as I have no wish to ride out the first significant reaction, should that occur sooner rather than later.