While Range-Trapped, Coffee Offers Favorable R/R Scalp for Bulls

February 10, 2017 2:57AM CST

Following the market's bearish divergence in momentum discussed in 01-Feb's Technical Blog that exposed a correction or reversal lower, the market finds itself wafting around in the middle of the past month-and-a-half's range between 28-Dec's 132.85 low and 24-Jan's 156.95 high.  On the one hand such range-center conditions include higher odds of aimless whipsaw risk and present a poorer risk/reward condition from which to initiate directional exposure.  For a couple of technical facts discussed below however, we believe the market may be offering a favorable risk/reward condition from which shorter-term traders can take an objective punt from the bull side.

Coffee Daily Chart

Drilling down to an intra-day 240-min scale below, this chart shows a bullish divergence in momentum on a very, very short-term basis that defines Wed's 141.70 low as one of developing importance and a micro risk parameter from which non-bearish decisions like short-covers and cautious bullish punts can be objectively based and managed. The Fibonacci fact that this level was in the same neighborhood as the (142.06) 61.8% retrace of Dec-Jan's 132.85 - 156.95 rally lends this low a little more street cred.  Furthermore, the relapse attempt from that 156.95 high looks to be a 3-wave affair, suggesting a correction of Jan's rally ahead of an eventual resumption of that rally to new highs above 157.00.

We still need this market to recoup 01-Feb's 151.70 smaller-degree corrective high needed to, in fact, break the downtrend from that 156.95 high and confirm this relapse as a 3-wave and thus corrective structure.  But for those shorter-term traders willing to take an objective risk to Wed's 141.70 low, we believe the conditions are ripe, favorable and objective for a punt from the bull side from current 146.50-area prices.

Coffee 240 min Chart

Coffee Weekly Chart

From a much longer-term perspective the prospects for a broader base/reversal environment from Dec's 132.85 low and key risk parameter remain intact ahead of a possible resumption of 2016's relatively impressive rally. We say "relatively" because on an even broader monthly scale below, this market remains trapped within the middle-half bowels of a contracting triangle pattern that's arguably been intact for 10 YEARS.  On this loooooong-term basis further aimless whipsaw risk should not surprise.  But even a relatively minor "flip" on this basis could be nominally significant to the 170ish-area or 120ish-area in the months ahead.  Currently however and while 28-Dec's 132.85 low and key risk parameter remains intact, our longer-term directional bias is to the bull side. And after the past couple day's bullish divergence in short-term mo after a 3-wave, 61.8% retracement, we believe the risk/reward merits of a cautious bullish punt from current 146.50-area prices are favorable with a tight but objective stop-loss just below 141.70.

Coffee Monthly Chart

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