Anyone who's ever traded in hard assets knows that prices for commodities often turn faster than a feral cat being carried to a bubble bath. You blink for half-a-second and "Poof!"-- the market trend whirls right around and dashes headlong into the opposite direction.
Make no mistake, this is volatile territory. The only way to anticipate the moves of these markets before they happen is to reduce the number of unknown variables in the mix. So, how do you do that? Well, if the mainstream equation "bad news = bearish trend," and "good news = bullish trend" were true -- then fundamental analysis would be the perfect trading tool.
Unfortunately, that is not the case. Every day you read about some market "ignoring," or "shrugging off" certain events to set off in a totally unexpected manner.
Case in point, the recent action in coffee futures.
On May 3, coffee prices rocketed to their highest level in 34 years. AND, according to the usual sources, there was a "perfect storm of reasons why coffee prices were rising." Such as:
- Brazil, the world's largest coffee producer, was about to enter an "off cycle" of low-bearing fruit.
- Growing "taste" for coffee from China, Brazil and Indonesia
- And a recent report from a London-based International Coffee Organization revealing a 50-year low in coffee inventories.
"The combination of potentially high demand and low supply drives coffee futures higher," began a May 3 Wall Street Journal. "We're just in a positive trend and it'll take a lot for that to turn around."
Yet -- the very next day, it took absolutely nothing to turn coffee prices way around in a sharp, two-day selloff to three-week lows.
The move, while fundamentally counter-intuitive, was exactly in line with coffee's Elliott wave script. Here, the May 3 Commodity Specialty Service presented the following close-up of coffee and this timely insight from editor Peter DeSario:
This chart "shows an extended wave 5 that began early last December could be completing now. A substantial decline should follow. While prices keep perking up along in this boiling hot market and shorts haven't 'urned' beans in a while, prices should soon join Juan Valdez in coming down the mountain."
Where will you be when the next opportunity in coffee brews?
Commodity Specialty Service Editor Peter DeSario has been actively involved in the futures markets for over 30 years. Subscribe now to get his experienced and actionable forecasts with expert analysis, key levels and price targets to help you with your trading decisions.
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