The number of coffee houses is growing in China
The Chinese chain of coffee houses Luckin Coffee has successfully placed its shares on the American stock exchange Nasdaq Global Select Market. Will the Robusta coffee quotations increase?
Robusta coffee is mainly grown in Vietnam, which borders with China. Investors praised the prospects of the company Luckin Coffee. After the IPO, its shares soared by 47%. Theoretically, we can assume an increase in coffee consumption in China. In early May, domestic quotations for Robusta coffee in Vietnam collapsed to a 6-year low. Due to this, the shipment of coffee this month has decreased by about 1.5 times compared with April. In the world market, the cost of Robusta also has fallen to a 9-year low at the beginning of May and Arabica coffee to a 14-year low. U.S. The Department of Agriculture has published a forecast on the export of coffee from Ecuador. It is expected to decrease by 35% in the agricultural season 2018/19 compared with the season 2017/18 and then another 10% in the season 2019/20 compared with the season 2018/19. Falling world prices for coffee can affect its production and export in other countries. So, the agency Conab expects a reduction in coffee yield in Brazil this year by 17% to 50.9 million bags (60 kg) compared to last year. At the same time, the area of coffee crops in Brazil in 2019 turned out to be minimal since 2007.
On the daily timeframe, Robusta: D1 again is close to the resistance line of the downward trend. Before opening a buy position, it must be pierced to the top. Various technical analysis indicators have generated uptrend signals. Further growth of quotations is possible in case of reduction in world production and with an increase in demand.
- The Parabolic indicator demonstrates signal to increase..
- The Bolinger bands widened, indicating high volatility.
- The RSI indicator is above the 50 mark. It formed a weak divergence to the rise.
- The MACD indicator shows an uptrend signal .
The bullish momentum may develop if Robusta exceeds the last two upper fractals: 1421. This level can be used as an entry point. The initial stop loss may be placed below the last lower fractal, the minimum since March 2010, the lower Bollinger line and the Parabolic signal: 1260. After opening the pending order, we shall move the stop to the next fractal low following the Bollinger and Parabolic signals to the next fractal minimum. Thus, we are changing the potential profit/loss to the breakeven point. More risk-averse traders may switch to the 4-hour chart after the trade and place there a stop loss moving it in the direction of the trade. If the price meets the stop level (1260) without reaching the order (1421), we recommend to close the position: the market sustains internal changes that were not taken into account.
Technical Analysis Summary
| Position | Buy |
| Buy stop | Above 1421 |
| Stop loss | Below 1260 |