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Coffee Relapse Raises Odds for Major Bear Resumption

Posted 01/16/2019 7:32AM CT | RJO Market Insights

In 08-Jan’s Technical Blog following that day’s bullish divergence in short-term momentum, the combination of that mo failure, historically bearish sentiment levels and the market’s proximity to the extreme lower recesses of the past quarter’s range warned of a base/correction/reversal threat and gave the bull the opportunity to perform.  This mo failure defined 19-Dec’s 98.60 low as one of developing importance and a risk parameter from which non-bearish decisions could be objectively based and managed.

But while that 98.60 low remains intact, the extent of the market’s relapse the past few days and it’s inability to sustain gains above 26-Dec’s 104.00-area resistance-turned-support renders the 98.60 – 106.85 recovery attempt a 3-wave affair as labeled in the 240-min chart below.  Left unaltered by a recovery above 106.85, this 3-wave bounce is considered another corrective/consolidative event that warns of a resumption of Oct-Dec’s downtrend that preceded it.  Per such, traders are advised to neutralize and cautious bullish exposure recommended after 08-Jan’s bullish divergence in momentum and move to at least a neutral/sideline position ahead of a suspected resumption of a bear trend that could easily resurrect the secular bear trend to indeterminable and potentially severe losses below 95-cents.

Coffee Mar '19 240 Min Chart

 

Coffee Daily Chart

We had hopes for the bull following that 08-Jan mo failure.  But it’s easy to see in the daily log chart above how the past few days’ relapse exposes that late-Dec/early-Jan recovery attempt as a mere correction against the backdrop of the broader downtrend from 19-Oct’s 125.50 high.  And while 18-Sep’s 95.10 low remains intact as an obviously key technical level and prospective support, it’s also easy to see how the WEIGHT of the TWO-YEAR downtrend could be reasserting itself, suggesting Sep-Oct’s rebound is a (4th-Wave) correction within the secular bear trend to new lows below 95.10 after a mere 38.2% retrace of 2016-18’s 176.00 – 95.10 bear.

From a sentiment/contrary opinion perspective, there’s no question that recent historically low/bearish levels are typical of major BASE/reversal conditions.  But as we always contend, sentiment is not an applicable technical indicator in the absence of a confirmed bullish divergence in momentum of a scale sufficient to threaten the broader downtrend.

08-Jan’s admittedly short-term mo failure gave the bull the opportunity to perform because of this historically bearish sentiment, but it has thus far failed to do so.  Strength above at least 106.85 is now needed to resurrect any bullish prospect.  Until and unless such 106.85+ strength is proven, we anticipate a resumption of at least the downtrend from 19-Oct’s 125.50 high to new lows below 19-Dec’s 98.60 low.  And while such a sub-98.60 break would still leave the market above 18-Sep’s pivotal 95.10 low that could repel the bear once again, only PROOF of non-weakness above a prior corrective high would defer or diffuse what we believe are growing prospects for a resumption of the secular bear market below 95.10.

Coffee Weekly Chart

 

Coffee Monthly Chart

What lies below 95.10?  NOTHING.  The monthly log chart above shows how much importance the market has placed on the entire $1.0000-area.  It’s a hugely pivotal area.  And when the market broke Nov’13’s 100.95 low back in Sep and we discussed the prospects of a total meltdown, the only inched lower before exploding in a 32% reversal higher.  If the market breaks below 95.10, the same thing could happen, but only if/when the market fails to sustain those losses below prior corrective highs currently like 106.85 (and we suspect the market would define tighter, more practical bear risk levels prior to such a sub-95.10 break).

However, only a glance at the quarterly log chart below is needed to see that there are NO LEVELS OF ANY TECHNICAL MERIT BELOW 95.10.  The only levels below 95.10 are merely “derived” from previous data points.  Levels like Bollinger Bands, channel lines, imokus, perhaps a multi-year moving average (forever useless) and some Fibonacci progression relationships.  ALL such “derived” levels NEVER have provided a reliable reason to expect support (or resistance) with respect to new lows (in this case) of a downtrend, and they never will.  So a failure below 95.10 would expose indeterminable and potentially severe losses.  90?  70?  50?  Any of these prospects would be in play until and unless the market even defers, let alone threatens what would be a clear and present and secular bear trend with a confirmed bullish divergence in momentum above a specific and objective prior corrective high or highs.

In sum, the past few days’ relapse threatens any base/correction/reversal count and reinforces a bearish count calling for at least a resumption of the past quarter’s downtrend to new lows below 98.60.  Below there we’ll have to play by ear to see if the bear can continue below Sep’s pivotal 95.10 low, the break of which exposes a chasm that could result in a meltdown of coffee prices the likes of which we haven’t seen since 1999 – 2001.

Coffee Quarterly Chart

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