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S-T Mo Failure Stems Coffee Rally, But Premature to Conclude End to Bull

Posted 07/08/2019 7:57AM CT | RJO Market Insights

Coffee Sep '19 240 Min Chart

Today’s sharp failure below 02-Jul’s 109.05 minor corrective low confirms a bearish divergence in short-term momentum that defines Fri’s 115.65 high as the END of a nice 5-wave rally from 19-Jubn’s 96.25 low labeled in the 240-min chart above and our new short-term risk parameter from which short-term traders with tighter risk profiles can objectively base non-bullish decisions like long-covers and cautious bearish punts.  Against the backdrop of a much broader base/reversal-threat environment we’ve discussing for the past six weeks or so however, it would be premature to conclude a more significant reversal lower after just today’s setback.

Rather, we advise approaching this relative sharp relapse as another corrective buying opportunity by longer-term players similar to that that unfolded from early-Jun to 10-Jun’s 96.25 low.  This said, a relapse-countering bullish divergence in short-term momentum is needed to arrest this relapse and reject/define a more reliable low from which any new or resumed bullish exposure can only then be objectively based and managed.

On a daily basis below the overall recovery 07-May’s 87.60 low looks to thus far be just a 3-wave affair that we cannot ignore a major BEAR MARKET correction ahead of a resumption of the secular downtrend to even new lows below 87.60.  But it’s grossly premature to conclude such a count until and unless commensurately larger-degree weakness below 19-Jun’s 96.25 larger-degree corrective low and key risk parameter is proven.

Coffee Daily Chart

Coffee Weekly Chart

Indeed, on a longer-term basis the factors warning of a major BASE/reversal count remain too unique and compelling to veer from a bullish course until negated by a relapse below 96.25.  These factors include:

  • the market’s gross failure to sustain early-2019’s break below a ton of former 100-handle-area support-turned-resistance
  • late-Jun’s bullish divergence in WEEKLY momentum amidst
  • historically bearish sentiment/contrary opinion levels
  • an arguably complete 5-wave Elliott sequence down from Nov’16’s176.00 high that
  • spanned a virtually identical length (i.e. 1.000 progression) to Oct’14 – Jan’16’s preceding 225.50 – 111.05 decline and
  • an “outside MONTH up” the month of 07-May’s 87.60 low.

For these reasons a bullish policy and exposure remain advised for long-term players with a failure below 96.25 required to negate a bullish call and warrant its cover.  Shorter-term traders with tighter risk profiles are advised to move to a neutral/sideline position to circumvent the depths unknown of a correction or reversal lower with a recovery above 115.65 required to reinstate the bull and expose potentially extensive gains thereafter.  We will be watchful for a relapse-stemming bullish divergence in short-term mo in the days/week ahead needed to stem this relapse and reject/define a more reliable low from which a resumed bullish policy can be objectively rebased and managed.

Coffee Monthly Chart

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