So, the forecast suggests two interesting timeframes to be looking to get long coffee between now and year end: October 26th and November 19th.  These are highlighted in the chart below.

Now, let’s take that to the chart.

What’s the chart saying?  First off, look at that beautiful coil.  We have definitely penetrated to the upside.  Can we hold it?  Good question.  Only time will tell.  But, look at this historical resistance around 144.25.  If price can hold above there, I’m a believer.  You see my target up towards 160.  There is potential for a solid trade as this price action unfolds.  Just keep the risk reward ratio in mind and don’t be a chasing fool.  Forecasts have to take a back seat to price action.  They are only guides to get our thinking started.  Price action is the authority.  Watch this unfold.  And as always, see the disclaimer.  Futures are high risk.  I am not offering any trading advice and take no responsibility for your actions.  This is strictly for educational purposes.

Because market timing is never something we will know with any great accuracy, it’s important to keep trying and probing.  Even though, I’m much more interested in the downside of a lot of these markets, I’m still actively setting up trades to take advantage of the long side.  As always, every trade, long or short, know your entry, your exit, your target, your risk, and your reward.  Under no uncertain terms, these are all givens.  It’s the research and preparation that goes on before you relay an order to your broker.  There is zero tolerance for improvisation when you have your trading groove on.

So, where is my attention tonight?  How have my thoughts adjusted over the past 24 hours?  Yesterday, I had orders on in Bonds, Cotton, Sugar, Silver, and Crude.  I got zero fills.  No biggie.  It played out as a very orderly “bounce” / range bound day after a monster trend day.  Perfect days for losing lots of money.  I was grateful not to get pulled in.  And, it gave me a chance to look at things again with fresh eyes.  What do my “fresh eyes” see?  Two things primarily: #1) I’m less interested / concerned with equities, bonds, metals, dollar…. more small moves ahead… worth waiting for the story to develop further before taking key positions.  #2) It brought a little more personal interest towards the bullish scenario.  So, I personally will be looking for both long and short side on some of my key remaining markets.  But, again, I’m putting some of the gunpowder back in the shed.

With the markets generally accepted as being overvalued and the economy widely accepted as being in the toilet, it’s hard to feel too bullish about price action going into the last week of the month.

What topics and themes are likely to emerge?  Let’s work backwards from next week.  Next week will end with the G20 meetings kicking off, unemployment rate / non-farm payroll, AND and FOMC statement…. not to mention some manufacturing numbers and some pending home sale data.  So, next week is a rocking news week in the financial markets.  We are about to commence “the week before next week.”  This week includes:

• Tuesday’s Consumer Confidence report
• Wednesday’s New Home Sales and Durable Goods Orders
• Also noteworthy on Wednesday is New Zealand’s rate statement

In term’s of the general market outlooks… my bias’ going into the start of the week are:

Favorite set-ups on the horizon:

• Very interested in an opportunity to short metals on the immediate horizon
• Possibility of a short Aussie near-term
• longer term horizon looking at a possibility to short some sugar next month
• An opportunity to buy some indices next month

General observation about markets, cycles, and timing:

As bleak as the current state of the economy and globe may be: as bad as housing may be, as bad as emerging markets may be, as bad as finance industry may be, and as bad as things may be for the US consumer, I would not be shocked if price bubbles continue to melt up significantly before they prices are annihilated again.  It’s well past time many traders expected prices to be heading south.  But, as markets tend to humble their participants, it would not surprise me if they have a few more surprises in store.  I’m just not seeing the technical signs in the market that things are too overdone.  But, the very first technical sign of systemic imbalance is in place: grossly correlated overvaluation across a broad set of asset classes.  But, that’s about it… some meltdown’s come unannounced, but, most don’t.  So, as always, precede with extreme caution.  Keep your powder dry.  Only fire when you must.  And, all the traders I have the pleasure of knowing good trading this week.

I’m not going into a lot of detail on this tonight.  But, I can say that the chart is telling me that coffee is looking technically overbought by a number of different statistical measures…. indicated in the bottom of this proprietary chart.  Additionally, I look to see that the longer term trend has no shifted to an up trend.  So, perhaps wait out a pullback and take a shot at a long.  As always, trade with your own discretion.

October 26… possibly 2-3 days earlier.  Keep an eye on this.

The two year cycle seems to be the least interesting of the four that I looked at: 2, 4, 5, and 10.

• Brazil and Columbia are largest producers
• traded on NYBOT

• produces in Indonesia, West Africa, Brazil, and Vietnam
• traded on LIFFE exchange

• imports and roasts tend to decline in spring and summer and pick up in fall and winter
• subject to upward spikes in June, July, and August due to possible freeze scares

• Biggest producers: Brazil (46.5 million bags ‘06-‘07, 36%), Vietnam (13%), Columbia (10%)

• US coffee consumption 22.64 million bags in 2006

(Source: The Commodity Yearbook (CRB))

Other links on coffee:

• Restructuring Uganda’s coffee industry
• The Political Economy of the World Coffee Trade
• The Coffee Trader
• USDA Foreign Agricultural Service
• International Coffee Organization

One market that has my attention at the moment: coffee!  Quite curious?  Read on.

I haven’t done my homework on this.  But, I’ll go as far as saying, the following chart caught my interest:

What you see here is a weekly chart of coffee.  It looks to be breaking out of a bullish wedge.  The bottom chart represents a seasonal pattern for this market.  There is a nice seasonal uptrend on the horizon.  And the wedge itself offers an interesting model for timing.  If this thing were to really break out to the upside, I’d say sometime in the last quarter would make sense just based on what the chart is suggesting.

Keep in mind:  I’m still waiting on that Sugar short to set up… or more interesting is a possible short on the equities market in early November.  I look forward to whatever opportunities lie ahead.