Coffee Reversal Continues, Defines New S-T Risk

December 23, 2016 5:09AM CST

Overnight's break below 12-Dec's 138.75 low confirms our suspicions that the recent recovery attempt was corrective within a still-developing reversal from 08-Nov's 179.55 high.  The important by-product of this resumed weakness is the market's definition of Tue's 145.25 high as the latest smaller-degree corrective high and new short-term risk parameter the market needs to sustain losses below to maintain a more immediate bearish count.  Its failure to do so would confirm a bullish divergence in momentum and leave whatever low that's left in the wake of such a mo failure as the probable completion of a textbook 5-wave Elliott sequence down from the 08-Nov high.

Coffee-H17-240min-Chart

Coffee-H17-Daily-Chart

The daily log scale chart shows the developing POTENTIAL for a bullish divergence in the stochastics measure of momentum along with the PROSPECT that this week's resumed slide is the completing 5th-Wave of the decline from 08-Nov's 179.55 high.  HOWEVER, only PROOF of "non-weakness" above Tue's 145.25 high will CONFIRM the divergence and wave completion to the point of non-bearish action like short-covers and cautious bullish punts.  Until and unless such 145.25+ strength is shown, the trend is down on all practical scales and should not surprise by its continuance or acceleration.

Indeed, the weekly log scale chart below of the most active futures contract shows the market's continued erosion through the 50% retrace of this entire year's impressive rally from 111.05 to 176.00.  And with our RJO Bullish Sentiment Index of the hot Managed Money positions reportable to the CFTC still relatively frothy at 71%, we believe that there remains a vulnerability to lower prices stemming from the market's forced capitulation of this long-&-wrong exposure.

In sum, a bearish policy remains advised with strength above 145.25 required for both short- and longer-term traders to move to a neutral/sideline position.  In lieu of such 145.25+ strength further and possibly accelerated losses remain expected.

Coffee-Weekly-Chart

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