ICE Coffee Testing 20-Day Moving Average -- Technical Analysis

Kira Brecht

  ICE September coffee futures fell Friday toward 20-day moving average support at 178.38. The bears

marked out a minor top at the Aug. 1 high and have pressured coffee prices lower in recent days. In

the very short-term, the 20-day moving average support zone will be a critical area to monitor.

ICE September coffee recently traded down 320 points at $1.8080 a pound.

  Looking at action in recent weeks, ICE September coffee posted a decent rally move off the

mid-July low. However, the bulls ran into a trouble on a push above the $2.0000 ceiling. Daily

action on Aug. 1 saw a large range day, which formed a "bearish shooting star" on the daily

candlestick chart. That formation confirms a minor top at the $2.0740 high from that day.

  From the Aug. 1 high at $2.0740, the bears have pressed ICE coffee lower into Friday's low at

$1.7940, which is for now holding above 20-day moving average support. The September coffee contract

has been trading above the 20-day moving average since July 23. If sustained declines are achieved

under that area, it would trigger another bearish chart signal and open the door to continuing near

term declines.

  Daily momentum studies have turned bearish in recent days. The nine-day relative strength index,

or RSI, a widely watched momentum tool has turned down from previously overbought levels and is

pointing lower. The nine-day RSI touched a high at 80% on July 31, before turning down to Friday's

reading at 48%.

  In the very short-term the 20-day moving average could act as support for the market. Initial

resistance lies at $1.8635. If the bulls can reclaim that ceiling it would open the door to near

term sideways consolidation, following the recent declines.

  However, if the bears are successful in forcing a settlement under the 20-day moving average over

the next several days, it would be a weak signal that would ultimately leave coffee prices

vulnerable to declines back toward the mid-July low at $1.5925 a pound.

  On a larger multi-month basis, the trend outlook remains neutral within a very large range. Since

March, ICE September coffee has been trading higher and lower with in a sideways band bordered by

$2.2060 on the topside and $1.6600/$1.5925 on the downside. The Aug. 1 rally move represented a push

toward the upper end of the trading range, which was quickly rejected. The near term outlook is

sideways to lower.