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Tumbling Coffee Futures Need a Jolt

After nearly doubling in price at the start of 2014, coffee futures (KC) are showing signs of a major turn-around.

Figure 1. Coffee Futures Daily Chart (KC - September contract)


The surge higher to 213.10 in March was just marginally (given the volatility of the move) eclipsed by the 220.6 high in April. Coffee saw a sharp decline following this high, and recently rallied back to a short-term lower high of 207.4, before succumbing to selling pressure again.

Of note is the very long tail on the August 1 which created the 207.4 high. That long tail, followed by a more than 3% drop on August 7 indicates the bull run in coffee is over, and lower prices are likely to come.

A Fibonacci extension puts the target for the drop in the vicinity of 150 to 146 (100% level). If the downtrend extends (161.8% level) the target is near 110, which would erase the entire run higher from early this year.

A drop below 160 also completes a head and shoulders with a conservative target at 110 (aligning with the above target), or a more aggressive target at 100.

A rally back above the 207.4 is less likely at this point, but would draw the direction of the trend into question. In this case it may be best to sit out a few rounds and wait for a more clearly defined trend to develop again.

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