In the last three days coffee has appreciated nearly 10 cent or 8.5%. Has the sleeping giant awoken? For weeks now I have tried to sway would be commodity speculators/hedgers, investors to position themselves for a coming appreciation. Today futures are challenging their 50 day MA (red line) for the first time since 5/17. It is apparent that we are experiencing a bullish breakout from weeks of sideways consolidation. We are currently trading at a fresh five week high. Looking at both daily and weekly charts seen below an argument can be made for a significant bottom and it would appear we have the potential to see further gains short-term. A potential frost or freeze in Brazil would be a game changer…just on rumors see how futures reacted.
Though the longer-term bear trend remains in place with coffee that has existed for the last two years. The jury is still out on how high this leg can lift coffee futures but the monster short position could get this market moving more than one would think on short covering. I see the next resistance at the congestion area just above the 38.2% Fibonacci level near $130.
Now for the charts…
Those in bullish trade should be lightening up on the recent ascent. My suggestion is to use Fibonacci levels as objectives on further advances. Fresh entries should be buying dips that hold the 20 day MA (light blue line). I like the idea of purchasing back ratio spreads on down days and for futures trades as opposed to naked outrights I suggest selling calls or buying puts as a hedge.
Prior to this week coffee had gained two out of the last three weeks and this week is far from over but so far futures have appreciated 7.05%. Stochastics are starting to turn on the weekly chart. Longer-term I think between now and year end prices have a chance of advancing to the red horizontal line- 15% above current trade.