ICE Coffee Hits Support Zone -- Technical Analysis

Kira Brecht

  The near term technical trend outlook is bearish for ICE March coffee futures, but the market has

fallen to a support zone that could stabilize price action.

ICE March coffee recently traded down 295 points at $1.8955 a pound.

  Since hitting a recent high at $2.2910 on October 13, the bears have been in control of the

short-term trend, driving coffee prices lower to the November 4 low at $1.8640. Coffee prices have

retreated swiftly in recent weeks and have now hit a support zone, which could stall or slow the

recent selling pressure. The market is testing long-term 200-day moving average support at $1.8931.

Coffee prices breached the 200-day moving average briefly on Tuesday, but rebounded above that zone

by the final bell.

  The March coffee contract has been trading above its 200-day moving average since late January. It

is largely considered to be a proxy for the long-term trend is a widely watched technical indicator.

This area could act as support in the short-term.

  Overall, the shorter-term moving average outlook is bearish for March coffee as the contract is

trading below its 20-day, 40-day and 100-day moving averages.

  However, daily momentum studies, including the 9-day relative strength index and slow stochastics

have fallen to oversold levels on the recent coffee price retreat. The oversold readings reveal that

coffee prices are vulnerable to a period of sideways consolidation or even upward correction. The

bears may be losing some steam.

  On a multi-month basis, March coffee futures have traded back and forth within a wide range band

since April. Minor trends have been seen, but the larger trend is neutral between major resistance

at $2.2450-$2.2910 and major support at $1.6645. There is an intervening support zone at $1.8060,

the mid-September swing low. That zone is important near term chart support and was the starting

point for the minor rally move seen in September and early October.

  The combination of the 200-day moving average, the proximity of the mid-September swing low, along

with oversold momentum readings, could stall the recent selling pressure. Or, the bears could drive

for a quick test of the September low at $1.8060, but then that floor could act as a sticking point.

  Bottom line? The near term trend outlook is weak. But, the market is oversold and near important

technical chart support levels. The larger multi-month trend for coffee prices remains neutral and

choppy within a large range. For now, the bears may need to pause to take a rest after the

significant price slide seen from the mid-October high.

  But, if major support at the 200-day moving average and then the September swing low at $1.8060

cracks, it will show the bears remain in firm control of the trend. If that were to unfold, March

coffee would be vulnerable to additional price deterioration with a major target at the July 15 low

at $1.6645.