The market opened at the lows and rallied 16.45c from low to the high for a net change of 13.70c. If the COT report had come out on Wednesday we may have been impressed with the funds who bought 16,273 lots. We may have considered additional short covering in the coming days. But the commercials, large and small traders and RC funds and swap dealers rejected the bullish idea and sold in the form of option delta, origin, long liquidation and new short selling. Volatility blew out as index and other specs increased their long position on the supplemental which is at least in part options related. Commercials sold the hefty premiums. The momentum and activity of the funds is important for sure but we canít discard exogenous factors like the macro picture which is being dramatically impacted as a result of the CVirus. The continuous rains are a problem but there arenít any reports of any damage to coffee so far. ICE warehouse stocks continue to drop, without any bags being processed, but origin sold during the COT period as well as while the market dropped in the days after. It is unlikely that coffee exports or consumption will be stymied but other commodities are and the Real continues to drop.
On the first day after the report, the market attempted the 122.00 level once again and by 8:00 the market was in the 120.00 and felt very iffy, Nagual indicated that consolidation was achieved and that the market was overbought. Longs pressured the market further, touching stops and eventually reversing the funds. On Wednesday the OI was down by 6,589 lots. On Thursday it was close to unchanged possibly indicating fund short selling. Origin appears to have been present during these two days but absent on Friday. Option premiums remained elevated as puts increased in volume.
On Friday the market continued to be pressured. Although origin seemed to be absent, forward bids began to get hit, possibly indicating that prices appeal to the the consumer side of the commercials. The market was steady on the close and post close but this was likely short covering by day traders. The sellers at the top may be buyers at these levels but funds will likely continue to pound the market and the Real does not look good. We will have to see if the buying will create a flat market at these levels for a few days or whether it will continue to drop. It may go back up, but why?
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