ICE Coffee Bulls Pause After Big Move -- Technical Analysis

Kira Brecht

  ICE March coffee is treading water Thursday, following a bullish run  over the last five trading

sessions. Since the Jan. 30 low, March coffee has surged 23% to hit its highest level since May

2013.

ICE March coffee recently traded unchanged at $1.4310 a pound.

   After basing out during November and December, the bulls seized control of the trend and coffee

has shot sharply higher since the start of February.

  Technically, the action is bullish and has propelled the contract above its 200-day moving

average, considered to be the proxy for the long-term trend. ICE March coffee has been trading under

the 200-day moving average since the start of 2012 and the rally above that line is significant from

a trend following perspective. The 200-day moving average comes in at $1.2352 on Thursday and is now

acting as support for the market.

  On the weekly chart for March coffee, the bulls have climbed above a long-term declining bear

trendline drawn off the September 2011 high, which is a bullish chart signal.

  The recent rally move, however, is almost parabolic in nature. Volatility has expanded

significantly and the market is registering overbought and overextended signals on the daily chart.

  March coffee has pushed outside the upper daily Bollinger band line the past several sessions,

which leaves the market vulnerable to a corrective reversion to the mean type of trade. The upper

Bollinger band line comes in at $1.4051 on Thursday. Markets rarely stay outside the upper or lower

Bollinger band lines for long.

  Daily momentum reveals an extremely overbought market. The 9-day relative strength index has hit

88% on Thursday. Any reading over 70% is considered overbought.

  Recent price action is bullish, but the market is vulnerable to a period of sideways consolidation

or correction following the massive move higher. A Fibonacci retracement drawn off the Jan. 30-Feb.

6 up move reveals 38.2% support at the $1.3380 area.

Bottom line? The trend is bullish, but the market is vulnerable to consolidation and correction.