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Coffee Brewing Something Big

The coffee price has held up at a critical juncture and is now set to explode higher. Let's take a look at the charts.


Coffee Daily Chart

Coffee Daily Chart

We can see price looks to have made a "three strikes and you're out" low formation consisting of three consecutive lower lows.

This third low was also accompanied by triple bullish divergences in the Relative Strength Indicator (RSI) and Moving Average Convergence Divergence (MACD) indicator. Nice. This generally leads to a significant rise in price and I expect no less here.

The Parabolic Stop and Reverse (PSAR) indicator shows price has just busted the dots on the upside so a bullish bias is now in force.


Coffee Monthly Chart

Coffee Monthly Chart

The major support I have been looking at stems from the PSAR indicator which pertains to the dots on the chart. Monthly PSAR support stands at US$156.89 for the month of February and the recent low at US$158.40 came in above. Nice.

It looks like an ABC corrective pattern is playing out with the recent low the end of wave B.

As for predicting where the wave C high may be I have added Fibonacci retracement levels of the move down from 2011 high to 2013 low. The two scenarios I fancy are price putting in a top just above the 61.8% level at US$229.46 or at the 76.4% level at US$259.82. I favour the latter.

The wave A high shows a bearish divergence with the April 2014 high and I'd really like to see a triple bearish divergence set up on the wave C high. Let's see.

Let's finish it off with the weekly chart which shows a very bearish pattern in the making.


Coffee Weekly Chart

Coffee Weekly Chart

Firstly, the RSI looks to have turned back up with bullish divergences in place while the MACD indicator looks to be threatening a bullish crossover. So, higher prices seem likely according to these lower indicators.

Finally, a very bearish 7 point broadening top looks to be in play denoted by the numbers 1 to 7. This pattern is much rarer than its 5 point cousin and even more bearish.

So, coffee drinkers look like they will be forking out a bit more over the coming months.

 

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