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Coffee Prices Are on the Verge of Soaring...

Commodities / Coffee Sep 24, 2015 - 10:13 PM GMT

By: DailyWealth

Commodities

Brett Eversole writes: Today, investors hate commodities... and coffee is no exception.

The last time we saw a setup like this, coffee prices rocketed nearly 72% higher in just four months. And over the past decade, these opportunities would have led to 25% average gains in just more than four months.


Coffee isn't a "buy" just yet. But a fantastic opportunity is setting up right now.

Let me explain...

Futures traders are currently betting against coffee at one of the highest paces we've ever seen. We can see this with the Commitment of Traders (COT) report for coffee.

As longtime readers know, the COT is a weekly report that shows the real-money bets of futures traders. Most of the time, this report doesn't tell us much. But when futures traders all agree, it can be a powerful contrarian indicator.

In the case of coffee, when futures traders are all betting on lower prices, the opposite tends to happen... Coffee prices tend to soar.

Today, the COT report shows that futures traders are uniformly negative on coffee. They're betting on lower prices with the strongest conviction that we've seen in years. Take a look...

A reading less than -14,000 has been a powerful negative reading over the past decade. And that's where we are today.

Importantly, coffee prices tend to rally after the COT report hits extreme negativity and then rebounds to a reading of 0 or higher. If you had bought each time that happened over the previous decade, you'd have made 25% average gains in just more than four months. Take a look...

This setup has happened five times over the past decade. And all but one of these trades were winners. The largest gain was nearly 72% in four months last year.

The COT report for coffee is currently hitting negative extremes. So we'll need to see it rebound before we consider buying. And luckily, we don't have to be futures traders to bet on coffee prices...

We can easily bet on higher prices with the iPath Bloomberg Coffee Fund (NYSE: JO). This fund tracks the price of coffee... and it's a simple way to make this trade.

Once again, we need to see the COT indicate a rebound above 0 before we buy. But once that happens, 25% gains in around four months are possible. And you can easily make the trade through shares of JO. Keep this idea on your radar and be prepared to buy soon.

Good investing,

Brett Eversole

http://www.dailywealth.com

The DailyWealth Investment Philosophy: In a nutshell, my investment philosophy is this: Buy things of extraordinary value at a time when nobody else wants them. Then sell when people are willing to pay any price. You see, at DailyWealth, we believe most investors take way too much risk. Our mission is to show you how to avoid risky investments, and how to avoid what the average investor is doing. I believe that you can make a lot of money – and do it safely – by simply doing the opposite of what is most popular.

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Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Daily Wealth Archive

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