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S-T Mo Failure Stems Initial Coffee Spike, Correction Could be Extensive

Posted 10/23/2018 11:17AM CT | RJO Market Insights

Now that the coffee bull has got everyone’s attention after an impressive and impulsive 1-month rally, overnight’s drip below 16-Oct’s 116.80 minor corrective low and our short-term risk parameter discussed in Thur’s Technical Webcast confirms a bearish divergence in momentum that defines Fri’s 125.50 high as the END of a nice-looking 5-wave Elliott sequence from 18-Sep’s 95.10 low as labeled in the 240-min chart below.  This combination of a momentum failure and 5-wave sequence defines Fri’s 125.50 high as THE specific high and new short-term risk parameter that the market has now got to recoup to mitigate this interim peak/reversal count and reinstate the broader bull.  In lieu of such 125.50+ strength, we anticipate a corrective rebuttal to Sep-Oct’s 95.10 – 125.50 rally that could be extensive in terms of both price and time.

Coffee Dec '18 240 Minute Chart

Coffee Daily Chart

The Fibonacci fact that Fri’s 125.50 high came within a smidge of the (126.00) 38.2% retrace of the entire secular bear market from Nov’16’s 176.00 high to 18-Sep’s 95.10 low on a weekly linear scale below would seem to reinforce and interim peak/correction count.  And given extent, impulsiveness and obviousness of the past month’s initial counter-trend rebound to such a major bear trend, traders should not now be surprised by a corrective rebuttal that could be equally extensive as the forces that drove the 2-YEAR secular bear trend aren’t going to evaporate quickly.

As a proxy for what to expect, traders need only study Dec’16 – Jan’17’s near-60% correction to Nov-Dec’16’s equally impulsive and obvious initial counter-trend decline before the real guts of the reversal took over.  In this current case, a 50%-to-61.8% retracement to the 109.25-to-105.73-range OR MORE in the weeks and perhaps even months ahead should not surprise while Fri’s 125.50 high remains intact as a resistant cap.

These issues considered, traders are advised to move to a neutral-to-cautiously-bearish stance until mitigate by a recovery above 125.50.  Additionally, proof over the next few days of corrective behavior on a recovery attempt to 122.00 OB may be approached as a correction and favorable risk/reward sale with strength above 125.50 required to negate this call and warrant its cover.  In lieu of such 125.50+ strength we anticipate a correction to the 109.25-to-105.75-area or lower in the weeks ahead.

Coffee Weekly Chart

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