ICE Coffee Bulls Carve Out Uptrend Pattern - Technical Analysis

Kira Brecht

  After two-and-a-half years of sustained bear market action, the bulls have finally carved out a

minor bottom on the ICE March daily coffee chart. The primary bear trend has been intact since May

2011, but November's bullish monthly reversal has opened the door to basing action.

ICE March coffee recently traded up 20 points at $1.1955 a pound.

   For now, it is too early to confirm a major bottom or end to the bear market, but the near-and

medium-term trends have turned bullish in recent weeks. Since bottoming out in early November, ICE

March coffee bulls have propelled the contract above the 20-, 40-, and 100-day moving averages,

which is a bullish signal to trend following traders.

   A minor uptrend pattern is seen on the daily chart off the early November low, with a series of

higher daily highs and higher daily lows.

   Earlier this week, however, ICE March coffee hit a ceiling of resistance near the Oct. 10 spike

high at $1.2105. The contract edged above that zone intraday, but hasn't been able to close above

that area for now. A minor consolidation phase has emerged on the daily chart, in the form of a

possible bull pennant pattern.

   However, in order for the bulls to confirm the bullish potential from the possible pennant

formation, a strong upside breakout would be needed above resistance at $1.2260. If that were

achieved it would project gains above the $1.3000 zone in the days ahead.

   ICE March coffee has made significant strides in recent weeks. After months of bearish dominance,

the bulls have been able to seize control of the short-term trend. The market is now at a critical

juncture. The $1.2100/1.2200 region represents strong congestive resistance from September and

October 2013 and that zone could be tough to crack at least initially.

   If the $1.2100/1.2200 resistance holds, look for short-term sideways consolidation and possible

modest downside correction as the coffee market digests its recent gains.

   Bottom line? ICE coffee bulls have turned the near and medium term trends bullish. The

longer-term trend remains bearish. The market has rallied substantially since the November low, but

has now run into a stiff resistance ceiling, which could trip up the bulls at least short-term. If

however, a strong upside breakout is seen over the next session or two, a potential bull flag

pattern would project significant gains higher.