ICE Coffee Futures (KC) Technical Analysis – September 30, 2016 Forecast

Profit-taking continued to hit the December ICE Coffee market on Friday. Some of it was related to the strength in the U.S. Dollar, some to hedge fund selling. The dollar moved higher overnight on flight to safety buying. This action hurt the Brazilian Real and led to speculation it would drive down demand over the short-term for coffee priced in dollars.

The biggest problem with the market right now in my opinion is excessive speculation. I’m sure you’ve heard the expression “buy the rumor, sell the fact”. Well coffee started to rally over the course of the summer on crop concerns, but then reached its peak and began selling off once the story on weather problems in Brazil hit the main stream.

The professional were in the move early when nobody else wanted coffee. But after it had already rallied considerably and the news about crop damage hit the internet, the speculative public climbed aboard and the rally stopped. A guess who the professionals sold their positions to in order to book profits? The public who chased this market on momentum without paying attention to the price levels and the price action.

Based on this assessment, this market is likely to continue to move lower until the public is finally driven out. At that point, the hedge funds are going to buy again since the longer-term fundamentals are still bullish and the rally will start again.

Once thing to remember when trading commodity markets, you have to start thinking about buying when nobody wants them, and start thinking about selling when everybody does. Also watch the headlines. When nobody is talking about coffee or the weather in Brazil, it may be time to buy. When everybody starts talking about coffee and the weather in Brazil then it may be time to bail out.

TECHNICAL ANALYSIS

The main trend turned down on Friday when the market took out the previous swing bottom at $149.00. However, there was no acceleration to the downside because there were buyers waiting at a pair of 50% levels at $149.40 to $149.05. In addition, I suspect that many traders did not move their stops from under the other main bottom at $147.40.

The uptrend will turn up on a trade through $154.95. It is possible we could become range bound between $154.95 and $147.40. This would indicate that buyers are building a support base.

Today’s price action proves the difficulty of trying to analyze and trade long-term and short-term charts and fundamentals at that same time so make sure you’re settled on how you want to trade this market. If you a longer-term trader then you are looking for a break into a value zone for the next buying opportunity so that you can take advantage of the bullish fundamentals. If you are a short-term trader then you are probably short because the trend and the momentum is down.

FORECAST

BASED ON TODAY’S PRICE ACTION, THE KEY TO SUSTAINING A RALLY TODAY WILL BE HOLDING ABOVE THE TWO 50% LEVELS AT $149.40 AND $149.05. THIS IS THE AREA THAT PROVIDED SUPPORT EARLIER. THIS ZONE IS LIKELY TO ACT LIKE A PIVOT.

THE CURRENT PRICE IS $151.60. THE NEXT PRICE SURGE IS LIKELY TO OCCUR ON A BREAKOUT OVER THE UPTRENDING ANGLE AT $152.40. THIS IS A POSSIBLE TRIGGER POINT FOR AN ACCELERATION INTO A DOWNTRENDING ANGLE AT $154.90 AND THE MAIN TOP AT $154.95. THE TOP IS ALSO A SHORT-TERM 50%.

IF $149.05 FAILS AS SUPPORT THEN THIS WILL SIGNAL THE PRESENCE OF SELLERS. THE DAILY CHART INDICATES THAT WE COULD SEE A STEEP SELL-OFF IF $149.00 IS ALSO TAKEN OUT SINCE THE NEXT MAJOR TARGET DOESN’T COME IN UNTIL $146.70.

THE KEY AREA TO WATCH TODAY AND OVER THE NEAR-TERM IS $149.40 TO $149.05. HOLDING ABOVE IT WILL GIVE THE MARKET AN UPSIDE BIAS. BREAKING BELOW IT WILL MEAN THE SELLERS ARE TAKING CONTROL.

RIGHT NOW IN THE MARKET WE HAVE A CLASSICAL BATTLE FORMING BETWEEN BEARISH SHORT-TERM SELLERS AND BULLISH LONG-TERM BUYERS SO BE PREPARED FOR INCREASED VOLATILITY AND A CHOPPY, TWO-SIDED TRADE.