בס״ד

A Flagon O’ the Forty Weight For Every Farmer (FARM,DBC)

Posted on October 24, 2019

Praised be The One who created the world…

…and coffee!

Hear ye, all ye family of nations, for today’s trade is java based.

The elixir of life is a’bubbling, and our plan is to mix ourselves a profitable brew to keep the whole family snug and warm and alert for the winter.

So join in the fun – and read on.

Commodity Doldrums

We start with a look at coffee futures, because this is one little bean that’s been hammered for years.

Poor little fella…

Take a look –

We’ve had mostly selling for close to five years now, but the technical picture is beginning to brighten.

Consider –

  1. Weekly RSI and MACD are both diverging higher from price for over a year (in green).
  2. Both are also poised to climb above their respective waterlines (far right, above arrows).
  3. A multi-year falling wedge pattern (in red) is nearing completion and is also bullish.
  4. And a fifteen month reverse Head and Shoulders pattern (in blue) is also coming to its end.
  5. A rise above 110 would trigger both the wedge and the H&S.

So…

Glad you ask, haggis-head.

Our journey today takes us to Northlake Texas, where absolutely no one grows coffee, but Farmer Bros. Co. (NASDAQ:FARM) distributes the mud under a number of labels.

Insider Interest

FARM has a market cap of just $230 million, but what caught our interest was the consistent purchase by insiders of the company’s shares over the last half year – exactly as coffee futures began to signal a bottom.

Those in the know added better than 15 million shares to their holdings over that period, upping their stake by an unheard of 404%. (!)

And we view that as significant.

Take a look at the chart now –

  • Most significant here is the overbought RSI condition (in green), a development that nearly always bodes well for a stock over the intermediate term.
  • And with both RSI and MACD surfacing above their respective waterlines (in blue), new technical buying should continue for the foreseeable future.
  • Finally, the short term MA has now completed its ‘scoop’ of price.  Next stop higher is the 137 day MA at 16.

And that’s all we need from the daily chart to know that a new beginning is at hand for FARM.

The Table’s Been Set

We would also add that a fully unfurled set of moving averages is a technical prerequisite for any turn higher.  And that, dear friends, we also have (above, in black).

Have a peek now at the weekly chart for the Texan coffee cabal –

A weekly oversold RSI read is a wake-up call, and FARM’s mid-August selling event (in green) was certainly that.  The coffee got smelt, so to speak, and the stock has jumped by some 40% ever since.

But it’s not over.

The movement of shares into stronger hands over the last six months (in black) is additional evidence that we’re just at the beginning of the move.

And it’s with that in mind that we offer you the following –

A long/short stock trade against the broad commodity sector.

Not only will the price of coffee ramp higher than the Invesco DB Commodity Index Tracking Fund (NYSE:DBC), but Farmer Bros will best them both!

A Jew and His Gold recommends you buy shares of FARM at the market (now trading for $14.22) and sell an equal number of DBC shares at the market (currently at $15.44).  Total credit on the trade is $1.22.

Many happy returns,

Matt McAbby

Leave a Reply

Your email address will not be published.