The Hindu Business Line : Coffee in next leg of price rally

Short-term view: After a sharp correction, CSCE Coffee futures price appears to have commenced the next leg of the upward move. It appears on course to move to the target zone of 150-160 cents (per pound) mentioned earlier (edition dated June 8). The short-term positive view would be valid as long as the price holds above the recent low of 96 cents.

Comments: The CSCE coffee futures prices went into a corrective phase as anticipated earlier. It, however, reacted more sharply than our projected levels. It dropped to a low of 96.15 as opposed to the expected target zone of 104-106 cents.

As part of Wave - 4 correction, prices traced out a `double zig-zag' pattern in the Elliott Wave parlance, as opposed to a `contracting triangle' pattern expected earlier.

The corrective phase appears complete and the prices have resumed the next leg of the rally that would take the price to the short-term target range of 150-160 cents.

The completion of the earlier corrective phase is also confirmed by the formation of a classic `Morning Star' pattern in Japanese candlestick terminology. This is a reliable bullish reversal pattern that occurs after a major correction. Prices have since staged a smart recovery over the past few weeks.

Long-term view: The long-term view on coffee remains unchanged. The weekly and monthly price charts continue to support the bullish trend and the earlier-mentioned target of 190-200 cents per pound still holds good. This target will be valid as long as the coffee prices hold above the 90-cent mark. A drop below 90 cents will negate our long-term bullish outlook and would warrant liquidation of long positions.

(Note: The technical analysis is based on historical price movement. There is risk of loss in trading.)

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