ICE March coffee futures are modestly weaker in midday Thursday action. However, despite the recent neutral consolidation action, strong daily chart support at the $2.3000 zone has underpinned downside probes over the last several weeks. The longer-term technical uptrend and the longer-term charts remain bullish, which keeps the focus firmly on resistance around $2.4000/2.4450.
ICE March coffee recently traded down 165 points at $2.3585.
The longer-term technical uptrend that dominated market action from June through December 2010 remains solidly intact. The daily chart continues to boast a series of higher highs and higher lows and the recent sideways action failed to harm the technical uptrend.
The market is far above its 200-day moving average, currently at $1.8186, which is considered a proxy for the long-term trend.
Looking at other moving averages, the coffee market remains bullishly positioned as well. ICE March coffee is well above its 100-day moving average, currently at $2.0772, and also above its 40-day moving average at $2.2632.
"It's been holding above the 40-day moving average for the past several weeks, which keeps the uptrend intact," noted Paul Hare, executive vice president at the Linn Group.
Since late December, however, the bullish forces lost their upside momentum and the coffee market downshifted into a sideways consolidation mode. Since Dec. 22, the ICE March coffee contract has largely been confined to a tight range between roughly $2.3000 on the downside and $2.4200 on the upside. A spike high on Jan. 12 was seen to a fresh 13 1/2-year high at $2.4450, before the market slipped back into its range.
From a momentum standpoint, the daily relative strength index had reached overbought levels, or readings above the 70.00 level in late December. The recent sideways action has alleviated those conditions, which can leave the bulls ripe for another upside thrust.
Markets can correct trends in two ways, either through counter-trend moves or via sideways action. Recent coffee activity is an example of the latter.
The Linn Group's Hare said he would "be inclined to buy breaks [in the coffee market.] The long-term charts are still positive," with the potential for new highs. However, Hare added that "we need a close above $2.4200/2.4400 to extend the rally."
While the market does offer a defined short-term-range trade opportunity, Hare added that because of the bullish potential from the monthly chart he'd prefer to "buy breaks against $2.3000 and not be a seller" on rallies.
If the ICE March coffee market does smash through near-term resistance at the $2.4400 zone and posts a new high settlement, Hare saw potential for longer-term gains toward the $2.7000/2.8000 area.
A look at the monthly continuation chart for ICE coffee reveals no chart resistance until $2.7500, the June 1997 monthly high.
(Source: http://www.coffeeasean.org/details.asp?Object=5&news_ID=30149001)
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