DJ ICE Coffee Review: Dec Rallies 5.1% On Technical Buying, Stops

 

Arabica coffee futures saw a huge 5.1% rally Monday, as prices shot to one-week highs on an improved technical condition, the ability of the market to hold near-term support and buying in the commodity indexes.

 

Most active December coffee rose 685 points to settle at $1.4235 a pound. March coffee also added 685 points to end at $1.4540 a pound. Analysts could cite no new fundamental developments for the rally. Instead, they pointed to the technical picture and the ability of the market to take out resistance and trigger buy stops. This action attracted waves of speculative buying on the way up.

 

« A lot of it is technical, » said Rodrigo Costa, analyst and vice president of institutional sales at NewEdge. Buy stops were activated at $1.38, $1.39 and $1.40, accelerating the sharp rally. Fund buying came into full force once December coffee scaled resistance at $1.40 a pound.

 

As for the ease with which prices climbed, Costa noted the holidays in Brazil and Mexico, putting little to no origin pressure on the market, he explained. Jack Scoville, analyst and vice president at Price Futures Group, said the ability of December to hold above support near $1.35 was key for the market and gave bulls incentive to rally the market to one-week highs.

 

Gains in the equity market also proved supportive for commodities like coffee as investors took on riskier trades in a slightly more positive environment following Friday’s decline on Wall Street. Honduran coffee exports in October, the first month of the 2009-10 crop cycle, more than doubled year-ago levels to reach 28,844 bags, versus 13,923 bags in October 2008, the Honduran Coffee Institute said Monday. Exports consist of leftover 2008-09 stocks as the physical harvest has not yet begun.

 

Based on the gains in coffee, bullish traders may try to target $1.4540 on December, the 14-month high set Oct. 19, said Costa. After that level, the $1.4785 high from August 2008 serves as resistance, followed by $1.5405 on December coffee.

If bearish traders succeed in pushing the contract below $1.40, then profit-taking would be expected, said Costa. ICE warehouse stocks fell 9,854 bags to total 3.275 million 60-kilogram bags, the exchange reported.

Source : FutureSource