The market began at the lows, which is also the closing price of the previous period, and closed at the highs, 23.20c higher. Intra day volatility increased as outright volume decreased. Spreads have also been volatile.
The aggressors in the market that propelled it to higher were mostly funds who were short covering. As reflected in the OI, liquidation took place on both sides and, some days, the OI was flat indicating short covering and new selling. The COT shows a variety of activity by all sectors. A large number of EFP/EFS was posted in both markets that covered every delivery month. Whether forward activity was off exchange or on exchange, it was all likely hedged one way or another making spreads active and volatile, and indicating commercial actual activity on both sides. Straight spread trading was and is also active.
Seventeen funds abandoned the market on the short side in KC while 11 added on the buy side increasing the net fund long position. In RC, funds also covered but they are still well invested on the short side there. Commercials added new sales in KC and sold longs longs in RC. Swap dealers sold new and old on both markets. The increased swap dealer activity is likely institutional. Large traders sold heavily both longs and shorts in KC and have been a major force. In RC they were new buyers. Small traders were also new buyers in RC. In KC, the COT doesnít distinguish between outright and spreads for either small traders or commercials.
What we witnessed for the remainder of the week was continued market buying by funds but increased selling likely by the same sectors shown in the COT. Rallies cannot thrive by short covering by one sector alone while every other sector is selling.
Although the coffee community provides a variety of reasons as to what is motivating the market, according to the COT, Fridayís sharp drop was due to exhausted buying, and not so exhausted selling. The view that we have random liquidation is now not so as only one sector is the biggest buyer of shorts while every other group is selling both longs and shorts. But evidence that the market is retrenching is present as we see lighter outright volumes that can cause wide swings, as well as continued liquidation by institutional entities and managed money.
Until there is a change in the progress of CVirus, until we have a clearer picture of the virusís consequences to coffee physical activity and movement, and until there is clarity in the fundamentals, the market will remain unpredictable. Notice season will be equally uncertain as over 60k remain open in the May OI. Although it is a smaller number than usual for this proximity to notice month, it is large relative to the thinness of the market.
The market closed on a weak note on Friday. However, as usual, shorts, option hedging and consumers will provide support.