HardAssetsInvestor

Written by Brad Zigler  |

October 04, 2010

This Week, Go Short

Details

The commodity market, as whole, has been good to traders lately. The Reuters/Jefferies CRB Index climbed 6.4 percent in September, the third-best month in the past 12. Commodities aren't monolithic, though. Some go up while others go down.

For all the excitement about gold's new highs and the sudden resurgence in oil prices, other commodities have attracted sellers' interest. This week's targets seem to include coffee, cotton and wheat.

• Coffee - Arabica jumped out of its doldrums in June, largely sparked by shortages in the robusta market. By the time September rolled ‘round, prices for premium beans shot up by 60 cents a pound, but stalled just short of the $2 mark as Brazilian supply started to hit the market. Now being augmented with new Colombian and Central American crops, the market's summertime scarcity fears have been temporarily quelled. Fundamentals still auger higher prices in 2011, but the near-term momentum is in sellers' hands. A wedge formation in the weekly chart points to a further breakdown move. If nearby December punches below the $1.80 level, selling is likely to take prices down the July congestion area at $1.63, if support at the 50-day moving average of $1.78 is cleared. Security-side traders will want to watch for the iPath Dow Jones-UBS Coffee Subindex Total Return ETN (NYSE Arca: JO) to aim for the $44.40 level if support at $48.80 is taken out.

• Cotton - The cotton market's finally run out of steam as old crop prices topped $1 a pound. Inventories have now reached equilibrium after years of deficit production. A key reversal has greased the skids for a slide to a 93.60-cent retracement level in the nearby contract. Some support at the 96.85-cent level is likely, but if sellers pile on, bearish sentiment could ultimately drive prices to the 89.70-cent area. ETP investors should look for objectives in the iPath Dow Jones-UBS Cotton Subindex Total Return ETN (NYSE Arca: BAL) at the $45.90 and $43.90 levels.

• Wheat - Panic buying of corn and wheat pushed the grains into overbought territory in the wake of the Russian drought this summer, so it didn't take much improvement in the supply chain to prick the hyperbullish balloon. Nearby December wheat is now aiming for the $6.50-per-bushel level as a way station to $6.07, a key retracement of its June-August run-up. With a 25 percent exposure to wheat, the iPath Dow Jones-UBS Grains Subindex Total Return ETN (NYSE Arca: JJG) has been double-rocked by a 37 percent corn allocation (corn's swooned 11 percent in the past week alongside wheat's 10.2 percent drop). The note's near-term downside objective is the $40.80 level. If that floor is breached, bears will likely set the $39.20 level in their gun sights.

Have a happy, if short, trading week!