52
COFFEE BUZZ FADES IN SUMMER
Coffee typically posts a seasonal high in May. This creates coffee’s most powerful sea sonal
play under normal weather conditions, which means a lack of frost in the Southern Hemi -
sphere growing regions of Columbia and Brazil.
Traders should look to sell short on or about
May 23 and hold through August 9. This trade
has worked 26 out of last 36 years with a 72.2%
success rate.
However, this trade did not fare so well in 2006
and 2007. An ex planation as to why this market
defied the sea sonal tendency to decline in this time
period was that there was a lack of rain during the
key flower pollination stage, resulting in a much
smaller crop than expected in Brazil back in 2007.
Trade estimates were looking for 50 million kg
bags of production, but according to forecasts, that
estimate backed down to 45 million kg bags of
production. So in essence, supply declined due to poor
weather conditions, while demand remained steady.
This trade was once again profitable in 2008
and 2009, and heading in the right direction at
press time 2010. Traders can sell futures or
implement a bearish option position. As for other
trading opportunities, the chart below shows the
coffeehouse and distributor Starbucks’ (SBUX)
price line overlaid on the bar chart of coffee.
When coffee declines, historically we have
seen a price increase for shares of (SBUX). The
reverse is also true. If coffee prices have been up
strong on or about May 23, and if SBUX is near
its yearly or monthly lows, then traders may
want to look to buy shares of SBUX or consider
call options. See pages 133–138 for additional
correlated trades.
ENTRY EXIT PROFIT/
YEAR DATE CLOSE DATE CLOSE LOSS
1974 5/22 75.50 8/08 62.50 $4,875
1975 5/22 56.14 8/08 84.80
–10,748
1976 5/24 136.95 8/10 147.65 –4,013
1977 5/23 305.25 8/10 205.11 37,553
1978 5/22 153.11 8/08 126.69 9,908
1979 5/22 156.62 80/8 197.29
–15,251
1980 5/22 209.42 8/08 138.77 26,494
1981 5/22 115.82 8/10 117.32
–563
1982 5/24 119.46 8/10 126.86 –2,775
1983 5/23 127.75 8/09 126.17 592
1984 5/22 154.09 8/08 141.71 4,643
1985 5/22 146.81 8/09 134.68 4,549
1986 5/22 215.18 8/11 170.90 16,605
1987 5/22 123.23 8/10 103.80 7,286
1988 5/23 133.85 8/09 118.34 5,816
1989 5/22 128.59 8/08 83.03 17,085
1990 5/22 99.11 8/08 91.85 2,723
1991 5/22 89.05 8/09 81.15 2,963
1992 5/22 65.50 8/10 53.25 4,594
1993 5/24 63.25 8/10 74.95
–4,388
1994 5/23 136.65 8/09 182.30 –17,119
1995 5/22 165.10 8/09 144.75 7,631
1996 5/22 119.60 8/09 115.10 1,688
1997 5/22 229.95 8/08 205.85 9,038
1998 5/22 134.00 8/10 134.20
–75
1999 5/24 120.50 8/10 93.75 10,031
2000 5/22 105.80 8/09 79.50 9,863
2001 5/22 67.90 8/08 49.65 6,844
2002 5/22 53.40 8/09 47.55 2,194
2003 5/22 68.00 8/08 63.70 1,613
2004 5/24 78.75 8/11 67.10 4,369
2005 5/23 121.15 8/09 102.60 6,956
2006 5/22 102.50 8/08 107.10
–1,725
2007 5/22 114.30 8/09 119.50 –1,950
2008 5/22 136.60 8/11 135.85 281
2009 5/22 136.90 8/10 135.85 394
36-Year Gain $147,979
MAY SHORT COFFEE (SEPTEMBER)
TRADING DAY: 16—HOLD: 54 DAYS
Chart courtesy TradeNavigator.com
COFFEE (KC) BARS AND STARBUCKS (SBUX) CLOSES
(WEEKLY DATA JANUARY 2009–MAY 2010)
Coffee Seasonal Pattern since 1973
c01_CTA_2011_pgs_12-119_c01_cta_2011_pgs_12-119 7/21/10 2:03 PM Page 52
MONDAY
16
TUESDAY
17
WEDNESDAY
18
THURSDAY
19
FRIDAY
20
SATURDAY
21
SUNDAY
22
The inherent vice of capitalism is the unequal sharing of blessings;
the inherent virtue of socialism is the equal sharing of miseries.
— Winston Churchill (British statesman, 1874–1965)
The worst mistake investors make is taking their profits too soon, and their losses too long.
— Michael Price (Mutual Shares Fund)
I’ve never been poor, only broke. Being poor is a frame of mind. Being broke is only a temporary situation.
— Mike Todd (Movie Producer, 1903–1958)
We’re not believers that the government is bigger than the business cycle.
— David Rosenberg (Economist, Merrill Lynch, Barron’s, 4/21/2008)
I had an unshakable faith. I had it in my head that if I had to, I’d crawl over broken
glass. I’d live in a tent—it was gonna happen. A nd I think when you have that kind of
steely determination…people get out of the way.
— Rick Newcombe (Syndicator, Investors Business Daily)
MAY
OE:
CL(M)
LT:
KC(K)
LT:
CL(M)
OE:
US(M)
c01_CTA_2011_pgs_12-119_c01_cta_2011_pgs_12-119 7/21/10 2:03 PM Page 53

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