This week we will return our attention to the Coffee market with some more real time analysis. Below is a current chart with selected tools applied:
Coffee has been declining fairly smoothly since early June when we recommended a short position (marked by a red arrow), and now seems to have found support around 91. Our work shows this to be a key support level, and we have marked this area on the chart with a horizontal white line. Additionally, if you have been watching previous showcases you will know that our proprietary (for now!) turning point detector forecast a bottom in mid July. Since Coffee has bottomed in mid July at 91, we can conclude that both techniques are holding. This sets the stage for a more intricate analysis which follows.
Let's start at the bottom of the chart and work our way up. At the bottom of the chart in magenta we have applied MA_Fractal, which measures the strength of the current trend. After a nice more up to around 20, this tool has now topped out and is starting to decline. This is an indication that the force behind the recent down move is beginning to dissipate.
The yellow and red lines show MA_PredictDELUXE (yellow) working to forecast a 13 bar MA_Momenutm curve (red). The yellow line is above the red line and rising, and there was a nice bullish divergence signal highlighted by the white trendline. This occurs when an indicator makes a higher low which is not confirmed by price. These can be very powerful signals, especially when used to confirm other analysis as we are doing in this case.
The cyan line is the Cycle Forecaster, working to tell us what the cycles should be doing 7 bars into the future. Price will generally follow this curve, both in direction and at turning points. This line bottomed earlier this month and has been up ever since. Additionally, a bullish Exhaustion Bar signal appeared under the last bar of the chart.
Taken together, this represents a large number of buy signals coming together at one time. Usually we require at least 3 confirming tools in order to look at a new position. If you count up the number of techniques supporting this current analysis, you will find that there are 6 of them. That's quite a bit.
This does not mean we should go out and buy Coffee at the market! It is best to get into a long position with a stop above the current price level. This way the market itself acts as a final confirming indicator by moving in the direction you anticipated. One way to do this would be to buy on a trendline break. MA_Trendlines has been applied to this chart for that very reason. Although they haven't given us a buy yet, it looks like we could have one in the next couple of days. Stay tuned...
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