ICE Coffee Testing Weekly Trendline -- Technical Analysis

Dow Jones - Kira Brecht

  ICE May coffee futures pushed higher Wednesday, as the bulls continue to propel the market to

stronger price levels. Since late January, ICE May coffee has rocketed over 56% higher. The action

has turned the near and medium term trends firmly bullish in recent weeks. But, the market is now

bumping up against a long-term trendline drawn on the weekly continuation chart that could act as

resistance.

  ICE May coffee recently traded up 150 points at $1.7775, down from Tuesday's intraday peak at

$1.8125 a pound.

  Technically, the market has swept higher in recent weeks smashing through all significant moving

average resistance points on the daily chart. The ICE May coffee contract is now trading above all

important moving averages from the 20-day to the 200-day, which is a bullish signal generally for

the trend following crowd.

  The market, however, is overbought on both daily and weekly momentum indicators, but that is not a

surprise given the massive rally move seen since late January. Strongly trending markets can remain

overbought for days or even weeks. But, it is a sign that coffee prices are vulnerable to a

correction.

  Shifting out to the weekly ICE continuation chart, the coffee market has bumped into long-term

declining trendline resistance, drawn off the May 2011 and September 2011 weekly highs. That

trendline offers resistance this week around the 180.40 zone.

  Additionally, bullish targets and resistance points are also seen on the weekly continuation chart

at $1.8545, the Oct. 5, 2012 weekly high and the 190.85 zone, the July 20, 2012 swing high. Those

areas are both important swing highs and technical chart points.

  The ICE coffee contract has posted gains for the past four weeks, seen on the weekly continuation

chart. This Friday's settlement will be important to monitor. If the market can pierce the weekly

trendline resistance on a closing basis, it would register yet another strong bullish technical

signal. If the trendline holds firm, it could suggest a period of consolidation or even downside

correction was beginning.

On the daily ICE May chart, nearby support lies at the $1.6830-$1.6205 zone.

  Bottom line? The market has rallied to a critical long-term trendline test. If the market stalls

at the trendline, overbought conditions could usher in a consolidation phase.