Each day, the mainstream financial media engages in a game of Cat and Mouse. Here’s how it goes: Various commodity experts chase after the rapidly fleeing fundamentals in hopes of catching a “live” explanation for the day’s price action.
The problem is, the moment they sink their teeth into one market-moving factor, three more get away.
It’s a losing game described by EWI founder and CEO Bob Prechter in the 2004 book Prechter’s Perspective. In Bob’s own words: “Sometimes [a certain news item] appears to fit a day’s trading so perfectly that everyone ‘knows’ what the cause of the days’ move was. Other times, the market does the opposite of what everyone would have expected. This unreliability proves that news is not determining the trend.”
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Editor’s Note: The fallacy of news-driven financial markets is just one of a number of myth-busting insights exposed in the pages of
Prechter’s Perspective. Get a copy of this groundbreaking book today.)
For a real-world example, consider the “mice” captured by the mainstream “cats” during COFFEE’s winning streak in late February. Off the top are these familiar favorites:
The Dollar’s Dive: “The price of coffee surged as continued weakness in the dollar kept many commodity market in rally mode.” (PressDisplay.com)
The Dow’s Drop: “Coffee Advances On Declining Equities -- Until investors have back their confidence in the stock markets, we should see inflows in commodities.” (Bloomberg)
Oil’s Surge: “A lot of the driving force in softs is a pick-up of what has happened in energy.” (The Herald)
Tight Supply: “The current supply & demand situation is underpinning the firmness in prices, making it likely that the present trend will prevail.” (Business Standard)
Here’s the problem: After hitting a decade-high on February 29, coffee turned ice cold with prices plunging 25% into late April. Even as the market reversed course, though, the four fundamental conditions that supposedly lent to its bullish ride remained unchanged. Case in point:
- "The Dollar’s Dive": The U.S. dollar plunged to record lows until turning mildly up on April 22.
- "The Dow’s Drop": The Dow Jones Industrial Average slid southward until March 11.
- "Oil’s Surge": Crude Oil soared past $100, $105, and $115 per barrel into its late April high.
- "Tight Supply": Coffee stocks remained at their lowest levels on record.
I repeat: Chasing news-driven explanations is a losing game.
As for clear and consistent insight into the near-term trend changes in store for COFFEE, the May 5 Daily Futures Junctures pulls this soft out of the crowd. With original price charts and objective analysis, DFJ reveals that “coffee is well on track” for a powerful move in one direction.
Will Coffee Prices Slid Even Lower?
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