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The Vancouver Coffee

Mukul Pal 

Between sipping and slurping a tall vanilla latte with my sister at Starbucks, Vancouver, I kept wondering. Was I going too much against the grain?

I have a short coffee position, and with the way Canadians (and my sister) love coffee, you could well imagine my dilemma.

Irritatingly, there are about 10 Starbucks here on the same street. Wherever I go, the coffee shop haunts me.

Simply put, the ubiquitous-ness of it bamboozles me. Yet, I defiantly hold on to my short coffee trade, in the foolish hope that some day the supports would cave-in, and I will exit for good.

I am an investment trader. If I am to short, I hold my trades for a few months. I can do this as I trade short spot (and not leverage trades). So, the only risk I run is losing all my capital.

Short spot, by no means, is very exciting. Compared to high-leveraged trading on forex, this is kid stuff. The risks involved and the pace of it are entirely different. I, however, prefer the modest short spot. At least I can watch my investment bleed, as compared to being summarily wiped out over the weekend.

My coffee trade has not been treating me badly. The bean has fallen from 300 in May to 242, and is now testing the 2010 highs. Any break down here could push prices to below November 2010 highs.

The trend watcher in me sometimes tries to question how fast those coffee bags (selling at Starbucks) really move? 100 bags a day, or just one? With experience, I know fundamental trends take time to translate into day-to-day price activity. Moreover, studies indicate, information affects prices consistently only over long periods of time. So, on a certain day, old news might still be at play. This is what behavioural finance also calls drift.

So, if the short coffee falls 20-30 per cent more, the trend watcher trying to correlate coffee sales with prices might be left scratching his head. It's only after years of practice that I have been able to arrive at unemotional, scientific systems. They work best because, first, they are objective, and, second, there are finite variables which can be modelled.

The Orpheus objective numeric ranking system, and the Jiseki cycles continue to suggest further negativity on coffee on a multi-month basis. This is one of the reasons why I knowingly smile, when handing over coffee to my sister. Although my detractor, she has no qualms having coffee with me.

The author is CMT, and Co-Founder, Orpheus Capitals, a global alternative research firm

First Published: Thu, August 18 2011. 00:05 IST