ICE Coffee Consolidates Beneath Key High

ICE December coffee futures are modestly firmer, in quiet consolidative trade Tuesday. The market is holding within Monday’s price high and low, as the Dec contract hovers just beneath major chart resistance from the Aug. 23 high at $1.8865, a 13-year price high.

ICE December coffee recently traded up 75 points at $1.8215 a pound. Action in the coffee market has been extremely volatile in recent sessions, with wide swinging large range bar days. The heightened volatility has been seen as the market is trading near 13-year extreme price highs.

The Aug. 23 day emerged as a “key reversal” day on the daily chart, as the coffee contract surged to a new high, but then reversed sharply and closed lower on the day, near session lows. Technically, that is a bearish formation.

Traditionally, technical analysis has shown that markets often exhibit high degrees of volatility as major tops and bottoms form on the charts. Terry Gabriel, technical strategist at Ideaglobal in New York, said the volatility in the market means “we don’t have a clear trend and there is the risk of sharp swings against the trend.”

Over the near-term, Gabriel saw potential for the ICE December coffee contract to continue higher. “Short-term, it looks as if we are going to make a push toward the Aug. 23 high at $1.8865,” he said. However, Gabriel expected that zone to stall upside progress for coffee.

“The weekly charts suggest that momentum is waning and the market is tiring. The severe swings that we’ve been seeing suggest that the trend is not a tight trend, but subject to wild gyrations,” he said. “I would look to be a seller near $1.8865,” Gabriel said. For a stop-loss, Gabriel suggested placing it just over the top of the upper weekly Bollinger band. On Tuesday, that level is around $1.9370.

Gabriel expects “the market will begin a decline and come back down to the Aug. 25 low at $1.6535,” he said. He pointed to the weekly stochastics and weekly volatility measures, which “appear to be topping and rolling over” as a key factor behind his bearish stance. But, he warned: “the market will likely be subject to gyrations.” Bottom line? “The thrust up off the early June break-out appears to be tiring,” Gabriel concluded.

Source : FutureSource