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Key Support Could Trigger Bounce in Coffee

18 June 2009

The recent drop back in Coffee has been deeper than expected, and price has quickly arrived at a key support area that we identified. This is a likely place from which a positive reaction can occur, and in the process avoid/postpone further bearish implications.

The recovery off 76.4% support, from late last year, recently reached the 61.8% retracement on the continuation chart.
Clear resistance has been seen, with obvious support from the prior 123.40 Jan high failing to halt the bears.

The Weekly chart of the front month shows failure near the lower 50% level, and almost exactly at the old 144.75 May-08 low.

In the Commodity Trading Guide we had initially thought that the 129.00 area could support,
but we had noted the lower 121.00/120.00 area as key support too. Ideally the channel base projection will hold, otherwise medium term bull momentum is called into question.
Bulls would want any overshoot to be contained by the 117.45 76.4% pullback.
Speculative buyers in the 121.00s (or 120.00s) have a limited risk level in that 117.45, so stops perhaps just below 117.00. Partial profits would be sought in the 135.00-138.00 area (probably towards the lower end), stops then rising to cost. A break below that 76.4% level would increase medium term bear risk once more.

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