Give Your Portfolio a Jolt

From the Desk of Ian Culley @IanCulley

Precious metals shine as the dollar drops.

It makes sense our bullish metal trades are working in this environment. But how are less dollar-sensitive contracts faring?

Let’s check back on two recent trades from October, coffee and orange juice.

First up is the orange juice futures contract:

OJ came within striking distance of our upside objective last month.

It’s now carving out a near-term top while posting a bearish momentum divergence – not the most bullish price action.

Regardless, I want to give OJ the benefit of the doubt as long as it holds above our 191 risk level. All bets are off if it breaks below that mark.

At the same time, selling a breakdown here does not appeal to me. The price memory below 191 has "chop-fest" written all over it!

And, when I zoom out on the weekly chart, all I see is a massive six-year base:

I don’t want to short OJ. If anything, I’m adding to my longs on a decisive close above 225.

Still, it could be messy in the near term. A period of consolidation makes sense at current levels.

I still like trading against 191 and buying strength on a break above 225, targeting 306 over longer time frames.

While OJ almost hit our initial objective, coffee futures met our downside target last month.

Coffee no longer carries a bearish bias in my book (to be clear, it has nothing to do with the fact I drink coffee all day, either).

The trade worked! Now is not the time to be greedy.

Also, I’m not crazy about the bullish momentum divergence.

For me, it reads the same as a bullish engulfing candle – a definite pause in the trend with potential reversal implications. 

On the other hand, I will flip the book long on a  break back above 174. That level represents our former target and a key retracement level.

If and when it reclaims that level, I’m targeting 207 in the near term and 260 over longer time frames.

That’s it for today! We don’t need a grand thesis to take action in this market. Just buy strength when it materializes.

The dollar continues to weaken. Our precious metals trades are working. And energy contracts refuse to roll over.

Now you can add a couple of critical levels for coffee and orange juice to the list of levels to monitor.

Stay tuned!

COT Heatmap Highlights

• Commercial hedgers hold their smallest net-short position for crude oil in almost three years.
• Commercials continue to hold long exposure to coffee near three-year extremes.
• And commercials favor the feeder cattle, adding more than 2,500 contracts to their long position this week.

Click here to download the All Star Charts COT Heatmap.