From the Desk of Ian Culley @IanCulley
What goes up must come down.
It’s an old commodity market maxim that never fails to deliver. The cattle, sugar, and OJ markets embodied this truth last year.
But as the calendar flips to 2024, it’s time to track those markets that failed to launch in 2023.
Here are three of my favorites…
Coffee
Unlike other softs such as cocoa and sugar, coffee failed to produce monster gains last year.
But it’s now attempting to carve out a multi-year double bottom:
Notice the resistance level at approximately 197 coincides with a key retracement level and a shelf of former lows. That’s our breakout level.
Also, note that the 168 level proved an excellent area to define our risk and get long well before our current line in the sand. A similar early-entry opportunity is taking shape in the cotton market.
But first, a daily chart of March coffee:
I like buying coffee futures on a decisive close above the April closing high of 196.20, targeting 250. If it’s trading back above those former highs, I’ll view last month’s strength as a false start.
Next up: cotton.
Cotton
Cotton futures might be my favorite chart for 2024.
It was on my 2023 list but failed to budge. Good things take time, right?
Check out the weekly cotton futures chart, coiling below a shelf of former highs:
The 89.25 level marks those former highs and a critical resistance zone. It’s off to the races if and when buyers absorb supply at that level.
But I don’t want to wait until price runs all the way back to 89. I’d rather take an initial position prior to a multi-year base breakout when possible.
A daily close above 83.13 in the March contract signals my entry.
That level coincides with last month’s pivot high and a shelf of former lows from last summer.
I’m long above that level, anticipating a much larger breakout above 90 with an upside objective of roughly 115.
Lean Hogs
Lean hogs looked like hot garbage, while cattle futures were posting fresh all-time highs last year:
Hogs are stuck in the middle of a decade-long range. It’s not bull market material.
Nevertheless, I like monitoring a bounce off the recent lows.
In fact, if we zoom in on the daily chart…
You could buy hogs today!
Lean hogs ripped higher yesterday with authority after undercutting the Nov. pivot low.
Sure, the 14-day RSI has yet to post an overbought reading. But momentum is swinging into the bulls court following a lack of bearish prints and a bullish divergence.
I like the Feb. contract as long as it’s above 65.80.
On the other hand, you can wait for a decisive close above 76 with an initial target of 87 and a secondary target at approximately 100.
Both work. It just depends on your trading style.
These three commodities markets – along with wheat – are sitting at the top of my chart deck.
If cocoa, sugar, cattle, and OJ are any indication, these big bases could explode higher in the coming months.
Stay tuned.
COT Heatmap Highlights
The CFTC failed to update the COT data due to the New Year holiday. We’ll be back next week with fresh data and an updated COT Heatmap.
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