A Short Term Look at Coffee Futures

By: Ray Tato | Mon, Mar 12, 2007
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The Coffee Futures have been in a short-term downtrend ever since the middle of last December, 2006, at 130.00. Prices have fallen nearly 20 points since, to a low of 111.10 on March 7, per the May Futures. How much lower will prices go? Will we reach the levels of last summer made at 93.50 in July? Well, if you take a look at Daily Chart #1, notice there is a Head & Shoulders Top marked with all five reversal points. The minimum downside objective is 108.3. With the low of the down-move so far being 111.10, the H&S Top objective is within striking distance of being met. Question: Will we meet the objective? Well, from a Classical Bar Charting point of view, I think, yes. But there could be another 'bump' along the way.


If you take a closer look at Chart #1, notice the small Falling Wedge that has formed over the last five days. This is a small pattern, but it has the potential to cause pain to the shorts and should be respected. Also, when looking at Chart #1, notice the divergence that price has developed with the Stochastics indicator. Is a rally imminent, then? Well, when you combine a 'short-term' momentum indicator with a chart pattern, there is always the possibility for a price movement in the desired direction; prices could creep up... or bounce up,... like they did back on the 21st of February. If you look at Chart #2, notice the Key Reversal and the 'three-day-mini' rally that started on the 21st; the whole 'bounce' was made on net short covering, or a decrease in Open Interest.


To have a 'healthy rally' of more than a few days, open interest needs to increase, steadily. Short covering will not sustain you; open interest will. Volume needs to confirm as well. So, with price so close to the theoretical objective and the last rally attempt on the 21st 'failing', what next? Well, the RSI is still signaling a confirmation w/the price trend and the short term trend is down. But, is there anything bullish on the horizon that has not been revealed? Could the price action on the May Futures chart be taking the form of a short term pullback to a larger intermediate price pattern? We will find out in my next report, when I cover the longer term range and find out if something is brewing.



Author: Ray Tato

Ray Tato

Disclaimer: Ray Tato or the Apprentice Technicians Outlook will take no responsibility for the accuracy of these source charts for price and time comparisons. They are the representations of an outside agency. I did not create the original content, supply the data needed or generate the original source charts for public viewing. I only try to convey what I see as a technical analyst. Nowhere in this abstract is there any indication to trade or invest. This piece is for educational as well as theoretical practice only. This is an exercise, and can in no way be viewed as a reason to put ones capital at risk. I do not advise you to trade based on this report.

Bio: Ray is an independent analyst and investor who began his education in the financial markets in 1985 by working on the floor of the Chicago Board of Trade. In 1999 Ray began his Technical Analysis studies at the Chicago Mercantile Exchange where he became a classical bar chartist. Along with charting, Ray like to study cycles and wave theory and mostly follows the DJIA. In his spare time, Ray plays blues on the harmonica. Ray lives in Chicago.

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