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In this week’s dissector we take a closer look at the generic Coffee ‘C’ futures traded on the Intercontinental Exchange (ICE), it is the benchmark for coffee. It closed at 142.1 cents on Friday.
Ever since registering a high at around 300 cents in May 2011, coffee has been trending downwards. It has been on a long-term downtrend forming lower peaks and troughs. Coffee took long-term support at 150 cents in June this year and reversed upwards. However, this rally failed to sustain and move beyond its key resistance at 185 cents in July and October this year and started declining.
Long-term view
In mid-November, the coffee contract tumbled below its significant long-term support and is hovering at its two-and-a-half-year low. Going back to September 2011, the coffee contract decisively breached its moving average compression (50-, 100- and 200-day moving averages) at around 260 cents. It has been trading well below its long-term average (200-day moving average) since then. Nevertheless, coffee is currently hovering above its next key long-term support at 130 cents. An emphatic decline below this support will drag coffee lower to the 100 cents and 112 cents band in the approaching months, which is its next important support level. Subsequent key long-term support is at 90 cents.
Key reversal upwards from the long-term support level of 130 cents will take the coffee contract higher to 150 cents. But to alter its long-term downtrend, coffee needs to rally above the resistance band between 220 cents and 230 cents. Long-term targets for coffee would be at 250 cents and then 270 cents. Significant resistance above 150 cents is positioned at 170 cents and 190 cents.
Medium-term view
In July 2012, the coffee contract encountered important long-term resistance at around 190 cents, making the 185-190 cents band an important resistance band. After testing this resistance band, the stock started to trend downwards. While trending down, the contract breached it 21- and 50-day moving averages and is hovering well below them.
The contract decisively broke through its key support at 150 cents in mid-November. Medium- and short-term trends are down for coffee. Both daily as well as weekly relative strength indices are featuring in the bearish zone, implying downward momentum.
The daily Williams %R oscillator is hovering in the negative territory signalling that the short-term trend will remain down. A strong decline below 130 cents will pull the contract down to 120 cents and then to 112 cents in the medium-term.
On the other hand, an upward reversal from the key long-term support at 130 cents will take the contract higher to 150 cents. Decisive weekly close above this level can take the contract northwards to 160 cents and then to 170 cents in the medium-term.
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