Momentum, Sentiment, Waves & Fibs Conspire on "Textbook" Base/Reversal Count in Coffee

January 6, 2017 2:43AM CST

In Tue's Technical Blog we introduced the early prospect of a base/reversal count following that day's recovery above Mon's 139.05 initial counter-trend but very minor high.  This admittedly short-term strength identified 28-Dec's 132.85 low as one of developing importance and the prospective END to a 50-wave Elliott sequence down from 08-Nov's 179.55 high. Commensurately larger-degree proof of strength above our key risk parameter defined by 20-Dec's 145.25 larger-degree corrective high remained required to CONFIRM the wave count and bullish divergence in daily momentum however.  This proof came with yesterday afternoon's rally.

Mon's 139.05 initial counter-trend high serves as a minor 1st-Wave high and our new short-term risk parameter this market is now minimally required to fail below to jeopardize the impulsive integrity of our base/reversal count while 28-Dec's 132.85 low serves as our new key low, support and risk parameter from which all non-bearish decisions like short-covers and new bullish punts can be objectively based and managed.

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As a result of the market's failure to sustain late-Dec losses below 145.25, we believe a confluence of technical facts presents a "textbook" base/reversal environment.  These facts include:

  • a confirmed bullish divergence in daily momentum that
  • defines 28-Dec's 132.85 low as the END of a 5-wave Elliott sequence down from 08-Nov's 179.55 high labeled in the daily log chart above amidst
  • a return to low, pessimistic levels in the Bullish Consensus ( measure of market sentiment that has warned of and accompanied a larger-degree correction and major reversal the past two years and
  • the market's rejection of the immediate area around the (132.41) 50% retrace of 2016's entire 111.05 - 176.00 rally shown in the weekly log scale active-continuation chart below.

Until and unless the market re-weakens to new lows below our key new risk parameter at 132.85, we believe the market is now prone to a larger-degree correction or reversal of Nov-Dec's 179.55 - 132.85 meltdown that could be relatively major in scope.

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We say "relatively" major because, on an even broader monthly log chart basis below, the market remains well within the bowels of an arguable lateral triangle structure that has spanned the past SIX YEARS.  But a relatively minor hiccup to, say, the 155-to-165-range on this basis that would easily qualify as mere range-center whipsaw behavior would be "nominally" significant.

These issues considered, shorter-term traders are advised to maintain cautious bullish exposure from the 139.35-area with a failure below 139.00 required to move to the sidelines.  Longer-term players have been advised to neutralize remaining bearish exposure and are next advised to move to a new bullish policy on a scale down from at-the-market to 141.50 with a failure below 132.85 required to negate this call, warrant its cover and re-expose the past couple months' plunge.  In lieu of such weakness we anticipate a correction or reversal of Nov-Dec's collapse that could be relatively major in scope.

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