Get 'Em While They’re Hot!

From the desk of Steven Strazza @Sstrazza and Ian Culley @Ianculley  

Commodities are on fire!

Crude oil is trading above 90, its derivatives are printing fresh highs, and natural gas is beginning to rip – again.

But, as we’ve pointed out in recent posts, it’s not just energy that’s working. We’re seeing broad strength in commodity markets.

Soybean oil is marching higher along with the rest of the bean complex, and corn hit our initial upside objective earlier this week. 

Today, we’re going to outline another ag contract that’s setting up for its next leg higher: coffee.

Here’s a zoomed-out daily continuation chart of Coffee Futures $KCF:

Coffee has been in a strong uptrend since completing a multi-year base last spring. As you can see in the chart, this base breakout was followed by a series of continuation patterns and fresh legs to the upside. 

Fast-forward to today, and we have another tight consolidation coiling just above a key extension level around 229. 

With the primary uptrend still intact, we should prepare for another resolution higher. And, if we get it, coffee will be at new 10-year highs.

We’re seeing this kind of strength all over the commodities market right now.

The best way to trade coffee futures is through the May contract $KCK2:

Since the March contract is set to roll based on volume next week and volume is already sufficient in the May contract, we’re best served placing our orders in the latter.

We want to buy May coffee on strength above the December high of 251.35. We’re targeting 316 over the next 1-3 months. This trade is not valid until we get a breakout above those former highs.

If the recent moves in soybeans and corn are any indication, coffee could blow right through those former highs toward our target.

The last thing we want to do is chase a breakout based on FOMO, exposing ourselves to unnecessary risks. So we need to be sure to have our orders in place.

If you don’t trade futures, we can also express a bullish thesis on coffee through the equity market using the iPath Coffee ETN $JO. Here’s the chart:

We want to be long JO above 62.50 with a 2-4 month target just north of 83.

Please note that JO does NOT meet our standard liquidity requirements, so we want to exercise caution when executing trades in this security.

That’s it for today. 

Be sure to check out our weekly trade idea from our natural resources and commodity-related scans below.

COT Heatmap Highlights

• Australian Dollar: Commercials continue to add to their long position, approaching record levels. 
• Orange Juice: Commercial hedgers are only 150 contracts away from a three-year-record short position.
• Coffee: Commercials are less than 3% from their largest short position in three years.  
• US Dollar Index: Commercial hedgers lightened their net short position but remain near three-year extremes.

Click here to download the All Star Charts COT Heatmap.

Trade of the Week

Today we’re highlighting the Livestock ETN $COW from our Commodity Fund list:

We can trade COW as a way to express our bullish thesis on cattle futures without directly engaging in the futures market.

Here's a daily chart of COW:       

We can be long if and only if it's above its 2021 highs around 40 with an upside objective around 44 in the coming months. 

COW is a no-touch as long as it’s below those former highs.

Thanks for reading! As always, please let us know what you think.

Be sure to download this week’s Commodity Report below!