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I took a nice little trade on coffee this week so thought I should share. The setup was a first higher swing bottom ABC that went to 100% in three days. And judging by the bigger picture there could be more where that came from. Chart 1 shows where the market pulled up at 50% of the May, 2011 high. Note also the strong rally from the 75% level in August last year, indicating that this resistance card has been working well so far. Chart 1: Coffee Weekly Bar Chart with 50% of High
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A study of Time by Degrees also reveals harmony at multiples of 60°, suggesting that this turn was one to watch. Chart 2 illustrates three approximately equal sections down from the May, 2011 top. You might remember that W.D. Gann tells us that markets usually move in three sections. Chart 2: Coffee Weekly Bar Chart with 3 Sections
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The current contract to be trading on Coffee is the September contract. When you aren’t sure, you can usually tell by comparing the volumes of the available contracts. Coffee moves with a tick size of 0.05 and each of these moves is worth US$18.75. In other words, every 1-point move is worth US$375. Like all futures these days, they can also be traded with CFDs at US$1 per 0.05 movement. In ProfitSource the code is KC-SpotV for the continuous contract-to-contract chart; and KC-2012.U for the September contract chart.
At the time of writing (5pm, 4/7/12), the ABC long has reached 100%, which lines up with a previous support level that held the market for several weeks in April and May, as shown in Chart 3. If the market continues and pushes through this level, then higher prices are likely. Needless to say, I will be watching closely over the next few days. Chart 3: Coffee September Daily Bar Chart with ABC Long
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Chart 4 indicates that the daily swing chart is showing an uptrend, while the weekly is showing an overbalance of price to the upside. If a higher swing bottom presents itself on the weekly chart, there might be an opportunity for a weekly trade and this is certainly a place I’d be looking for more daily long setups. Chart 4: Swing Charts on Coffee
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On the bigger picture I will be watching for an overbalance of price and time compared with the three week rally in August last year from 75% of the May high. This will determine if we can expect a more sustained rise in coffee prices. If you enjoy a good coffee then a few trades on this commodity could pay for your daily dose for quite a while. Or better still- buy you a coffee machine!
It’s the Journey
Lauren Jones
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