Early Rumblings of a Low/End to Recent Coffee Plunge

January 4, 2017 3:21AM CST

While the market remains below our key risk parameter defined by 20-Dec's 145.25 corrective high, this morning's nondescript break above yesterday's 139.05 high confirms the very, very short-term trend as up.  This relative strength may not seem like much, but this area has been one of recent support from mid-Dec that serves as a new near-term resistance candidate.  Eking out gains above this area, again, while of a minor scale thus far, is important in defining last Wed's 132.85 low as one of developing importance and a new short-term risk parameter from which non-bearish decisions like short-covers and cautious bullish punts can now be objectively based and managed.

This admittedly tight but objective risk parameter will certainly come in handy for those interested in speculating on the prospect that that 132.85 low COMPLETED the recent plunge from 08-Nov's 179.55 high and threatens our bearish count introduced in 18-Nov's Technical Webcast following 11-Nov's mo failure.

Coffee 240 min

One of the factors contributing to a broader base/reversal environment is the prospect that the decline from 08-Nov's 179.55 high is a complete 5-wave Elliott sequence as labeled in the 240-min chart above and daily log scale chart below.  This is about as "textbook" a count as there is.  Again, the market is required to recover above 20-Dec's 145.25 corrective high to CONFIRM this count as well as the nicely developing POTENTIAL for a bullish divergence in daily momentum.  As a result of today's minor strength however, we believe the market has identified last week's 132.85 low as a reliable one from which the risk of any bullish best can be objectively based and managed.

Coffee Daily

Additionally, the weekly log scale chart below shows that the market has thus far rejected the immediate area around the (132.41) 61.8% retrace of 2016's entire rally from 111.05 to 176.00.  Finally, the Bullish Consensus (marketvane.net) measure of market sentiment has eroded to a historically low 24% level not seen since Oct'15, a condition that ultimately contributed to Jan'16's major base/reversal environment.  Such is exactly the type of overt bearishness typical of major base/reversal conditions.

Coffee Weekly

The monthly log scale chart below shows the last couple times the Bullish Consensus eroded to such depths, warning of and accompanying both major lows in Nov'13 and Jan'16.  Today's minor strength is of too small a scale to conclude a reversal higher, but it could well be a start, with 20-Dec's 145.25 corrective high the key level this market needs to recoup to reinforce this base/reversal prospect.  We would also add that the market's position in the middle of a arguable 6-year lateral triangle formation maintains the odds of aimless whipsaw risk.  But on this massive scale, even a relative minor hiccup higher could result in nominally significant gains to the 155-to-170-area.

These issues considered, shorter-term traders are advised to move to a neutral-to-cautiously-bullish stance from current 139.35-area price with weakness below 132.85 required to negate this call.  Longer-term players are advised to pare bearish exposure to more conservative levels and jettison the position altogether on a recovery above 145.25.  Needless to say, a relapse below 132.85 nullifies this base/reversal count, reinstates the broader downtrend and exposes potentially sharp losses thereafter.

Coffee Monthly

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