Time for a coffee break?
Coffee has been forming one huge descending triangle pattern since its major peak in early 2011. You can see this in the weekly chart below. More recently, however, prices experienced a strong, steady correction higher from March 2016 to a peak in November.
You can see why prices reversed as they hit the five-year trendline in November. The pullback, however, perfectly held the 100-week moving average at 132.40/30 (the blue line). It looks like this market charts pretty well! Simple technical analysis is clearly working here.
Note how the price recovered to the green 500-week moving average at 156.00 and turned lower to test the red 200-week moving average at 142.90/80. Just trading those moving averages would have yielded some decent profits for swing traders.
If bulls are to maintain the one-year positive trend we obviously need a break above the green 500-week moving average at 156.00/10. This would then target the six-year trendline resistance at 168.00/50 in the weeks ahead.
Take a closer look
Focusing on the short-term daily chart below, it’s interesting to note how the pullback from November to December 2016 targeted the 61.8% Fibonacci support at 136.05 and the green 500-day moving average at 134.40. We overran as far as 132.85 but bounced very sharply.
On the January to February 2017 pullback we tested the red 200-day moving average. We bottomed exactly at the 61.8% Fibonacci support of 142.06 as you can see in the daily chart below. This market really does follow all the basic technical analysis rules!
So it’s clear that the important support levels are holding when coffee experiences bouts of profit-taking. The price has now shot higher to test the 100-day moving average three-month trendline resistance at 150.10/20.
In fact, coffee closed above that 150.10/20 resistance yesterday after reaching a peak of 150.90. It therefore looks likely prices can break out to signal the next leg higher in the short-term one-year bull trend. The obvious first target is the January high at 156.95. Once through here we can push higher towards 160.70/80 and the November 2016 high at 176.00.
Now let’s return to the longer-term perspective to see just how far coffee could go this year. I have zoomed into the last two-year period in the weekly chart below.
You can see that on a break above the 500-week moving average and January high at 156.09/156.95 there is not an awful lot to stop prices shooting higher towards that six-year trendline resistance at 168.00/50.
A break above 170 should therefore be seen as a major longer-term buy signal. Only then can we really say that the bull market has begun.
Technical Analyst & Trader
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The content of this article is the personal opinion of the author and not Intertrader. You should under no circumstances consider the information and comments provided as an offer or solicitation to invest. This is not investment advice. The information provided is believed to be accurate at the date the information is produced.