ICE Coffee Futures (KC) Technical Analysis – November 1, 2016 Forecast

Overbought conditions helped drive December ICE Coffee futures on Monday. The market is saturated with speculative buyers and because of the bullish fundamentals, everyone is on-board for the rally. However, just like the crude oil and natural gas markets, not everyone can be right, so I expect to see a short-term correction. This move is necessary to shake the tree a little and drive out the weaker longs.

The move is not likely to lead to a change in the trend, but should alleviate the overbought condition and give investors the opportunity to re-buy at more favorable price levels.

Technical Analysis

The main trend is up according to the daily swing chart. However, the chart pattern suggests momentum may be shifting to the downside. Overcoming $166.90 will signal a resumption of the uptrend. The trend will change to down on a trade through $155.10, but I don’t think we’ll get there before the new buyers show up.

The short-term range is $155.10 to $166.90. Its retracement zone at $161.00 to $159.60 is the first downside target. Since the main trend is up, we could see a technical bounce on the first test of this zone.

The main range is $145.20 to $166.90. Its retracement zone at $156.05 to $153.50 is the major support area. I wouldn’t like to see the market fall as low as this area. Although it represents a major value area, reaching this area will mean the market has taken out the recent weather premium.

Forecast

Based on Monday’s close at $164.15, the direction of the coffee market today is likely to be determined by trader reaction to the April 6, 2015 top at $163.95. Breaking this level could be an indication that the recent rally was all short-covering rather than speculative buying. It will also mean that those who bought strength over this level are now trapped.

A sustained move under $163.95 could generate enough downside momentum to drive the market into a pair of uptrending angles at $162.20 and $162.10. These angles are followed closely by the short-term 50% level at $161.00 and the short-term Fib at $159.60.

Holding $163.95 will indicate the presence of buyers. This could fuel a rally, but don’t get too excited about the upside unless the buying is strong enough to overcome the steep uptrending angle at $169.10.

Watch the price action and read the order flow at $163.95 today. Trader reaction to this level will set the tone for the day.