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COFFEE Technical Analysis - COFFEE Trading: 2015-05-28

Breaking out of the range

Coffee has been trading in a range for the last three months. On May 21 coffee prices fell to 15 month lows after Volcafe, one of the leading coffee merchants in the world, forecast world production surplus of 1.3 million 60kg bags for 2015-2016. Earlier in May were raised the forecasts for output in Brazil, the world’s biggest coffee producer, and Indonesia, the third ranked robusta coffee producing country. Volcafe maintained also expectations for a record crop in Vietnam, world’s biggest robusta producing nation, despite the dry weather conditions, and lowered 2015-2016 forecast by 100 thousand bags to 30.5 million bags. At the same time world demand was by a combined 1.9m bags over the two seasons. Given expected increase in coffee supply and fall in world coffee demand, coffee prices are set to decline in short to medium term.

coffee prices

Coffee has been range bound for the last three months after trading with negative bias since mid-October. On May 19 the price started a downward movement and plunged about 5.5% on May 21. In the following session it closed below 129.70, the lower bound of the range, and has declined in the next two sessions. The Parabolic indicator shows continuation of downtrend. The slope of the Donchian channel confirms downtrend. The RSI-Bars oscillator has been falling, indicating a downward price movement. We expect the downward movement will continue after the price breaches the lower Donchian channel at 125.04 and closes below it. A pending order to sell can be placed below that level. The stop loss can be placed above the lower bound of the range. After pending order placing, the stop loss is to be moved every day to the next fractal high, following Parabolic signals. Thus, we are changing the probable profit/loss ratio to the breakeven point. If the price meets the stop loss level without reaching the order, we recommend cancelling the position: the market sustains internal changes which were not taken into account

PositionSell
Sell stopbelow 125.04
Stop lossabove 129.70

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