In a frustrating market where the major averages chop around, taking traders with them, many market participants are looking for non-correlated opportunities. Luckily as a technician I can look at any and all liquid asset classes from around the world, and I most certainly do. This week one of the areas I’m seeing opportunity on the long side is in Orange Juice futures.
Looking at the weekly chart, prices are finding some footing at the 161.8% Fibonacci extension of the Oct-Dec ’14 rally, which also corresponds with long term support in the 105-108 area. What’s important to note is that the declining 200 week simple moving average indicates that the structural trend is indeed lower and that this trade is merley a counter-trend play on mean reversion. The reason I like it here is because if prices are going to get going from anywhere, it’ll be from here with momentum positively diverging on multiple timeframes.
On the daily, contract adjusted chart, prices recently put in a false breakdown below the March lows, as momentum positively diverged. Prices are 17% below the 200 day moving average and are now testing a confluence of resistance near 117. If prices can consolidate here for a few days and then break, and close above these downtrend lines, I think we get an explosive move to the upside.
Now, let’s look at the backdrop we’re working with in terms of sentiment and seasonality. From a seasonal perspective, June is the third worst month of the year in terms of performance, with July and August being slightly positive on average. What really gets me excited is the positioning of Commercial Hedgers. Their net long position is the highest it’s been since 2003, and has only been surpassed a few times in history. Additionally, the sentiment readings I get suggest that the public is quite pessimistic about this market as well. It’s these same conditions that have led to big snap-back rallies in other asset classes, i.e. Wheat in early May.The Bottom Line: This isn’t the sexiest trade out there, but I think the weight of evidence suggests higher prices from here. Better yet, the risk is clearly defined in that we only want to be long above the March lows. Below that, all bets are off. If prices can breakout above these downtrend lines at 117, I think we see prior support at 128 and the 200 day at 136, which represents roughly 15% upside from here. The best part about this trade is that Orange Juice futures don’t give a hoot what the S&P is doing, which is great when the tape is as choppy as it has been.
As always, if you have any questions feel free to reach out and I’ll get back to you as soon as I can.