ICE Coffee Consolidates Above Contract Low--Technical Analysis

Dow Jones  -  Kira Brecht

  ICE March coffee prices bounced higher Friday, as the market continues to

consolidate just above its fresh contract low set November 6 at $1.0415 a

pound; ICE coffee futures spent most of the past week trading sideways, just

above the low.

  ICE March coffee recently traded up 270 points at $1.0835 a pound.

  The ICE coffee market has been trending lower in a long-term bear market

since May 2011. Mid October saw the bears accelerate the downside action and

March coffee prices fell sharply. From Oct. 15 to Nov. 6, ICE March coffee

tumbled from $1.2075 to $1.0415 a pound.

  During that sharp and steady sell-off, daily momentum tools fell to extremely

oversold levels. On Nov. 6, the 9-day relative strength index hit 8%. Any

reading under 30% is considered oversold. The market was due for a snapback

corrective rally and consolidation move, which has unfolded over the last week.

  ICE March coffee bounced as high as $1.0985, which is now key nearby

resistance to watch. But, the market has remained under its 20-day moving

average, which was at $1.0927 on Friday.

  Daily momentum continues to point higher and could support additional

corrective probing to the upside in the near term. But the market would need to

sustain a rally through the 20-day moving average to open the door to

additional strength. If gains are achieved through that zone in the near term,

traders could look ti probe toward the upper Bollinger band line, which came in

at $1.1571 on Friday.

  Ahead of that upper Bollinger target, a Fibonacci retracement of the Oct.

15-Nov. 6 sell-off identifies the 38.2% retracement level around $1.1058, the

50% level at $1.1251 and the 61.8% level at $1.1415.

   The long-term bear market remains intact, but coffee is likely to see a

period of consolidation or upward correction as the market digests the recent

sell-off. There are no bottom formations on the daily chart to suggest a major

low is forming. On the monthly continuation chart, however, major long-term

support is seen at the December 2008 low at $1.0170. The market is in proximity

of that long-term bearish objective, which could be a tough floor for the bears

to crack at least initially.