Chart Of The Day: Coffee Bottoming Out?
Tiho Brkan | Aug 18, 2013 12:18AM ET
I do not own any positions in Coffee right now. Having said that, the price has dropped so much and the bear market has gone on for so long, that I am starting to see very good value in this commodity... even if it is only for a multi month trade. Hedge funds and other speculators have been extremely negative on Coffee, holding constant net short positions for over a year now.
Sentiment surveys confirm this outlook, with constant bearish readings. The downtrend has not yet ended, as can be seen in the chart above, despite a false breakout try in May of this year. However, I believe we are now approaching levels where buying this commodity makes sense.
Chart 2: Coffee is now giving us a bullish momentum divergence
The price of Coffee has created an interesting long term bullish divergence setup. The chart above looks at the difference between the price and the 200 MA, also known as trend momentum. Over the last two decades, these setups have occurred two other times (usually post crash bottoming out phases) and we are currently witnessing the third.
Keep your eyes on Coffee and do not be surprised to see it rally sharply in coming weeks, months and quarters.
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