Whilst other commodity markets have recently raced a head, Coffee has been marking time. What we now need to know is whether the time is now near for Coffee to to shift gears and start its own bull run to much higher prices. Most recent price action has taken coffee down from 130 to 113 (March 07), with the immediate trend still down, giving us the opportunity to enter at the earliest price trigger coming off of a low.
Coffee Futures Monthly Chart (NYBOT)
Coffee Futures Weekly Chart (NYBOT)
Technical Analysis of Coffee (NYBOT)
- Trend Analysis - The last high breached the preceding high, which is bullish and suggests that the current decline to 113, is corrective, The up channel line is containing the up trend.
- Resistance - Immediate resistance is at the last high of 130, with major resistance at 138.
- Support - Immediate support is at 110, with coffee within striking distance of this support level. Major support is along the last two corrective lows, presently at 98.
- Elliott Waves - The basic elliott wave pattern suggests the recent break above the last high of 126, marked wave 1 of the next bull run. This also suggests that the current corrective action is unlikely to carry to the Major support line at 98, but could halt at the immediate support of 110. On a longer view the price pattern suggests a strong bull run to well beyond the last high of 138.
- % Levels - The Corrective triangle pattern measures 40 points and therefore key %'s are : 150% = 148, 161.8% = 153. Therefore coffee is targeting a move to between 148 and 153.88 X200% = 172.
- Up trend Line - .The key support trendline is along the lows at 98. The current support trendline on the weekly chart is just below the 110. This is likely to hold the current correction.
- Inter-market Analysis - How are other soft markets performing ? - Cocoa, has built a similar base and shown signs of breaking higher. Sugar is also confirming a new bull run after a sharp bear market. Milk has also built a base for a bull run higher, so both milk and sugar confirm our coffee trade brew.
- Time - Coffee has spent approaching 2 years correcting the last bull market from 60 to 138. Therefore it is likely the next bull run will last for at least a year from the breakout point.
Conclusion - Coffee, despite being in an immediate downtrend, is showing signs that it is about to gear up for a breakout higher within the next 2 weeks. For a sustained bull run to beyond 148, which is the initial target. Going by previous bull runs in coffee at a similar stage, coffee could easily reach 172.
Buy Trigger - Despite the temptation to jump in now, DON'T ! Wait for an entry trigger ! The tightest acceptable trigger would be a break above the previous weeks trading high. Which currently on the March contract is 116 (expiring), (May 119), as the immediate trend remains lower towards 110 support area.
Target - The three targets are 148, 152, and 172
Stop-Loss - The stop would be 2 cent below the low prior to the entry trigger. On the March contract this is currently at 110.5, May 113.5
Therefore the risk on entry at 116 (March, 119 May) would be 5.5 cents for an initial potential of 32 cents.