(02/19/20) Coffee, Cocoa & Sugar See Increased Ranges

Greater volatility suggests range expansion in the softs complex, writes Phillip Streible.

The Coronavirus effect on China is beginning to work its way through to currencies and the demand for specific commodities. Expect to see expanding ranges in both directions.

Cocoa (May)

Fundamentals: With the euro currency completely falling off a cliff over the past 10 sessions, cocoa is going to cost a lot for European importers to grind. Therefore, expect those numbers to disappoint next quarter while other variables lean positive like the hot dry weather in the Ivory Coast and Ghana. In addition, with Apple (AAPL) downplaying future demand, one can only expect other retailers to post sluggish sales leading to decreased cocoa demand.

Technicals: Swing target of 2950, trend traders have been long since Jan. 10 with price of 2602 and with substantial open equity they should be moving stops higher or getting to the sidelines and waiting for a new breakout. Sell stops on may are down at 2787 and support is at 2782. Volume has been sliding off the past week which makes me think the longs are using the “Hope” strategy looking for new highs. The negative directional index (-DI) is crossing over positive directional index (+DI) while Average Directional Movement Index (ADX) is flat and stochasics are in the middle of the range. Basically, this market is screaming to go to the sidelines and wait for renewed strength or a big sell off.

Bias: Neutral
Previous Session Bias: Bullish/Neutral
Resistance: 2900***, 2935****
Pivot: 2787 Point traders would exit longs and head to sidelines
Support: 2750***, 2700****

Sugar (May)

Fundamentals: The market powered back after a two day selloff and found some bidding off of support. Tomorrow we need to see a puncture through 14.90¢ and a breakthrough 15.00¢ to get the bulls back feeling good. Sugar is paying attention to some of the agricultural markets and how China is dropping the tariffs. Demand is still remaining strong and the global production remains tight.

Technicals: This market is starting to have a higher average true range and really would not surprise me if it breaks out of its current range. Trend traders went long back on Jan 6 at 13.79¢ and their sell triggers are a close below 14.29¢.

Bias: Bullish/Neutral
Previous Session Bias: Bullish/ Neutral
Resistance: 15.00***, 15.29****
Pivot: 14.29 - Point traders would exit longs and head to sidelines
Support: 14.00***, 13.75****

Coffee (May)

Fundamentals: Producers are already starting to show a pickup in demand despite the Coronavirus outbreak. This might be a bit ahead of itself as Starbucks (SBUX) will most likely replicate what Apple did by lowering demand and guidance.

Technicals: Coffee has had a wild range over the past 48 hours with nearly a 10¢ range. Use $1.15 as your resistance point and $1.05 as your support. If we see either of these technical levels broken, we may see extensions in either direction.

Bias: Bullish/Neutral
Previous Session Bias: Neutral
Resistance: 115***, 121****
Pivot: 115 - Spot where trend traders get long.
Support: 105***, 100****

Orange Juice (May)

Fundamentals: Frozen Concentrated Orange Juice is waiting to see if the coast is clear before making another move higher. Since my mom sent an edible arrangement to the office yesterday, I have to imagine there are others out there that believe Vitamin-C is the solution to getting a head start on combating the incoming Coronavirus.

Technicals: While the technicals lean slightly positive, it would not take much to attract some bulls by breaking out over near term resistance.

Bias: Bullish/Neutral
Previous Session Bias: Bullish/Neutral
Resistance: 102.00***, 102.75****
97.10 - Point where trend traders would head to the sidelines
Support: 100***, 98.00****