October 26, 2009

ICE Coffee Futures

So many commodities are in the news - Gold, Oil, even Silver. Are there any others of interest left to trade?

The daily bar chart above demonstrates the utility of four tenets of technical analysis. First blue vertical dashed lines demark dates of interest. A grey dashed cycles study is plotted between the first and second date. Next, red boxes denote two key price regions in the chart, and a blue horizontal dashed line a third. Lastly, Andrew's Pitchfork is plotted from the chart low, to the most significant bull peak thereafter.

First, lets study the Pitchfork. Note that median line is holding as resistance against the current bullish breakout in Coffee. This run up has occurred following a breakout from the symmetrical triangle formed from Jun 09 to present. The breakout itself is now retracing toward the outer trend line of the triangle itself, and should hold if the breakout proves to be a correct indication of this market's strength.

Next notice the current resistance level. Coffee is exhibiting a classic state of polarity, where by the 145 price level, which was once support, is now catching its breath before a potential subsequent run. Price targets for both downside support and future bullish resistance can be found in the repeated attention 131 and 157 have received in the last two years. Indeed, the current triangle formed nearly around a center value at 131, so the market clearly respects this level.

Lastly, study the current dominant cycle in Coffee. Constructed between the Dec 08 and Mar 09 swing bottoms, the price action is pivoting at nearly every time cycle. Adding fuel to the fire, we see that pivots are also occurring midway through each swing between each date. There is clearly a rhythm to this market going forward, with the next pivot date forecasted for early to mid Nov 09.

Whatever comes of the ICE Coffee futures in the days and weeks ahead, technicians should be mindful of the technical principals noted above. The cycles do appear to be expanding, so a subsequent pivot later in Nov 09 would not be a surprise. For now, 131 represents support, and a move through 145 should target 150 to 157.

Jeffery E. Lay, CMT
President
Talon Eight, LLC

Disclaimer: This post is intended solely to disseminate information, and is not, and shall not be construed to constitute financial, investment or other similar advice. All posted material should be independently verified for accuracy and current applicability. Readers of this post are referred to the Risk Disclosure for further information.

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