Hobofinance.com

Gooooooood morning all.  We had an exciting day in the markets.  Crude oil sold off heavily no doubt due to the easing hurricane threat.  The dollar is up, and as a result commodities across the board sold off.  After an hour or so of trading this morning most commodities recovered most of their losses on the day.  Day’s like this are trying but are also very telling.  When a broad sell off occurs and a particular commodity is able to buck the trend, or at least show a lesser decline, its a great sign of internal strength for that market.  Coffee has shown us that strength today. 

As I mentioned previously Coffee futures showed this same strength during the large declines in most commodities over the last few months.  Again, something seems to be holding this market up.  News friday said that the Brazilian coffee harvest is about 20 percent behind last years, calling in to question quality of the current crop and also increasing the risk of next years crop having quality issues, should rains fall before the current crop is picked in full.  Despite the potential risk to next years crop, the supply and demand situation is still very bullish, even if all is well.

The final indicator I was looking for flashed BUY this weekend, which was a sharp contraction of open interest, signifying the commercial traders un-hedging and in some cases going long the market.  Commercial traders aren’t  speculators by nature, they are producers and users, and a net long position is indicative of long term value in prices.  As such I increased my position today, adding 6 call options at a strike price of $1.70 (20 cents out of the money) for May of next year.  This leaves me with a total position of 8 contracts for december and 6 for May.  This accounts for about 58K of the 60K I borrowed.  On a bounce in December futures to $1.60 or so I intend to liquidate December calls and roll them into May.  Time to hang on for the ride.