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The weak technical action and a selling trend from speculators in the COT reports could help keep the short-term trend down. The supply fundamentals still look mostly supportive over the near-term but traders remain nervous with the outlook for a much larger Brazil crop harvest this summer. March coffee closed sharply lower on the session on Friday and closed lower every session last week. March was down 125 points on Friday and lost 790 points for the week. A lack of new news in the cash markets and weakness from outside markets helped to drive futures lower. The surge higher in the dollar and weakness in the Brazilian real along with a further sharp sell-off in many commodity markets helped to pressure. Talk of uneven flowering for the Brazil 2010 crop and the potential impact on quality failed to provide support. Open interest was down 1,025 contracts to 128,297 contracts. The Commitments-of Traders reports for the week ending January 26th showed a light selling trend from speculators who still hold a net long position of over 30,000 contracts. Trend-following funds were net sellers of 3,876 contracts for the week to 30,177. The selling trend is a short-term negative force and selling could intensify if support levels are violated. Colombia coffee is trading near a 77 cent premium to the cash market as compared with 79 cents a week ago and a premium of 29 cents one year ago. The premium has helped keep buyers in a “hand-to-mouth” buying pattern which suggests that commercial buyers will be active on breaks. Poor weather for Colombia and Indonesia due to El Nino has failed to provide much in the way of support recently. Daily ICE certified deliverable coffee stocks were down 1,677 bags to 2.930 million with 51,819 bags pending review. Stocks have fallen to their lowest level in 7 years.
TODAY’S GUIDANCE: The market seems to have the fundamentals to turn up at anytime but for now the short-term trend is down. The 132.25 level for March coffee is a key pivot and next key support is all the way back at 128.20. A move back over 135.30 will be necessary for any hope of a near-term low.
