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Noel Campbell Back in Trading Tutors Newsletter Issue #100, I wrote about the potential for a big run up in the Coffee market (KC-SpotV). This was on based on long-term cycles of 10, 20 and 30 years that look set to conclude in 1997. It would pay to review that article to freshen up the focus on the potential. The challenge with a big run on commodities is the volatility of the swings on the way up. For those clients of Safety in the Market, who may not be keeping old editions on file, you can use your Software login details and password to access all the previous editions of the TTN on-line at www.sitm.com.au.
Coffee has already made a good run off the lows of the long drawn out sideways move played out from late 2001. When I penned that first article the market was approaching the potential resistance of the last major high of 149. The market to no surprise found some selling around the 140 level, but recently rallied strongly back to 135.
Chart 1 shows the recent market action on the daily bar chart for the Spot V contract. The range down from the March high (139.5) was 29.75. The rally after the run down was strong without a retracement until it reached the recent high of 135.
Chart 1
click chart for more detail
Taking the range of 29.75 and projecting it down from the 135 high, the 50% Danger Zone comes in at 120.125. The low of this last little run down is 119.75, close enough to the 50% to arouse my interest. We all know how powerful the 50% can be for support or resistance. If the market holds above this level the recent highs of 139.5 and 135 could be in trouble.
The specs we need to know for the Coffee contract ( KC ) are relatively basic. The minimum price movement (tick) is 0.05 cents/lb and each tick is worth US$18.75. The contract that is currently providing the data for the Spot V chart is July 2005. Entry into the market on the breaking of the recent inside day high (124.80) by one tick, with stops one tick below the 119.75 low, puts the risk at 5.15 cents/lb (124.85 – 119.70) – which is worth US$1931.25 per contract.
If the market breaks below the 119.75 low, the market will be in a weak position and likely to continue moving considerably lower before finding stronger support. For now the outlook is for the market to hold above the recent low on 50% and challenge the recent highs. In my travels I have come across a number of traders keeping a close eye on Coffee and with good reason.
Until next week......
Noel Campbell
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