Medium term
Trade view / 15 June 2016 at 5:26 GMT

Coffee trend turns bullish following a long decline


Coffee (COFFEENYCont) has something quite interesting going on since the low set back in January. It has been moving steadily higher, with higher lows and higher highs. And as we can see, the up-legs are now lasting longer then the pullbacks from a time perspective as well.

This is indicative of a new bullish trend that is also confirmed by the 50 and 200 day moving averages trending higher.

Looking at the time cycles, we have a possible alignment with the move off the 2011 highs and the subsequent low and a bounce into the peak in October 2014, and the down-leg lasting from that peak to the low point that was hit in January this year. It isn't been a perfect alignment, but it is close enough, given the long time frames. From a price perspective the 2011 peak aligns with the low set in January. This is also indicative of a bullish trend.

Looking at the shorter time frames, price is now consolidating the last burst higher off the late May/early June lows into the June 8 peak. So far the price has managed to close above the key Gann level at 133, which is positive. Should we see a close above $139/pound, pivot signals are for higher prices into resistance at $151/lb, $156/lb and $163/lb.

Management and risk description

The developments in the price of coffee are interesting and it appears as though the trend has turned bullish.

The plan is to try to exploit this bullish trend by buying coffee (COFFEENYNYSEP16) upon a close above $139/lb for a move into resistance at $151/lb, $156/lb and $163/lb for the weeks ahead. The stop could initially be placed upon a close below $133/lb.

The main risk to this setup is the volatile nature of Coffee and the risk is therefore a breakout which is quickly reversed in the opposite direction. Such breakout failures are often reversed in fierce manor.

Parameters COFFEENYSEP16

Entry: Close above $139/pound.

Stop: Close below $133/lb.

Target: $151/lb, $156/lb and $163/lb.

Time horizon: One to four weeks.

COFFEENYCont daily chart
COFFEECont daily chart

COFFEENYCont daily development chart
COFFEENYCont daily development  chart
Charts: Saxo Bank. Create your own charts with SaxoTrader; click here to learn more. 

— Edited by Robert Ryan

Non-independent investment research disclaimer applies. Read more
28 June
Johan Berntorp Johan Berntorp
Is Coffee finally on the fly?
30 June
Johan Berntorp Johan Berntorp
One can transform the stop to a hard stop at this point and until we get more cycles a breach of 134 would set the entire situation at risk so a hard stop at 134 appears appropriate as the widest alternative for a stop. Another option would be to set a stop upon a daily close below 139 since such an event would open up for a test of the 135 level..


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