Has Coffee Spiked To An Intermediate Price High?

By: Ray Tato | Tue, Sep 25, 2007
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With the price spike recently scored by the nearby Coffee futures to the upside, a Tug Of War for the short and medium term direction of prices has been resolved! This battle for price dominance has been waging since the beginning of May 2007, when coffee made a significant low.

And in my last article, I mentioned that, 'if a full 100% give-back in price occurs', the whole 'H & S Bottoming set-up would fail', along with the price objective of 126.00. Well, if you take a look at Chart #1, notice that the price of coffee has gyrated back and forth, forming a large upward Trend-Channel and a 'Nested Rising Wedge'.

To a classical Bar Chartist, these two patterns represent 'polar-opposites', and when they meet as they have now, the outcome can be explosive, especially if the pressure builds. And, with the key to the intermediate term direction for coffee resting on the boundary lines of both patterns, any test of these lines can cause excess internal turbulence and increase any price reactions.Turning to Chart #2, notice the lower boundary line of the Rising wedge was tested or pressured to the downside for five or six days, until finally, a small H & S Reversal pattern evolved, and set the stage for the next price move. Question: Do the Bulls have the upper hand now or will the Bears prevail?

Well, in chart #3, the outcome of this question was answered decisively as the price of coffee sky-rocketed higher to contract highs and easily met the price objective of 127.4 for December in the short and medium term. So, with the battle for this leg of price direction for coffee being won by the bullish Trend-Channel, what next?

Looking to Chart #4, I pose the question: Could both degrees of trend be topped out, and if so, what type of pullback would be reasonable in the near term? Taking a closer look at chart #4, notice there is a huge gap present between the neckline of the H & S bottom at 121.5 and the December 17th low of 124.75. Also notice that a 50% pullback would take price back to the 122 level, just shy of filling the gap in the short-term.

But what about the intermediate term, is there any indication that prices have reached an extreme? Yes.

In Chart #NMC, the continuous weekly chart shows that the price of 134.3 has run up against overhead resistance at the same time that two momentum indicators are showing a negative divergence to this price. Adding this latest scenario to the short-term outlook previously discussed in Chart #4, helps to build on the bearish tone developing here. And even though support can be found at the upper boundary lines for the Trend- Channel and the former Rising Wedge on both the daily and weekly charts, it will be interesting to see if the Gap present on both the Weekly and Daily charts are filled to the downside before any more upside price action takes place in either Degree of Trend.

If a pullback does occur, a good buying opportunity could present itself at the neckline of the small reversal pattern shown here on Weekly as well as the Daily Chart. We will see!



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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