A massive short-covering rally is underway as March coffee prices continue find solid support among some key fundamental issues. The Brazilian currency has been very strong, while major producers such as Columbia and Indonesia fear potential threats from El Nino this year. The Hightower Group has reported “with the market less than 3 cents above the level from where the last COT report was measured (December 18th), coffee should still have a sizeable net spec short position that can fuel short-covering.” I believe this is just getting started.
A double-bottom at the 10250 level prompted a rally to break above the 10710 level, which has been a good resistance level and consolidation high. With this strong rally on high volume and RSI levels, I’d expect to see some immediate follow-through buying take place to push March coffee prices back to the 115 level, and then ultimately to revisit the 200-day moving average (approximately at 119).
Coffee Mar ’19 Daily Chart