Coffee Continues Markdown
Eric De Groot | Feb 04, 2016 12:54AM ET
Coffee, driven by falling supplies from drought-stricken regions within Brazil and Columbia and steady demand, entered a short, countertrend rally from February 2014 to December 2014. Cause building, the accumulation or dissipation of energy necessary to fuel mark up (up) or mark down (down) that tested previous support as resistance, confirmed August's 2015 breaking of the ice as continuation of mark down.
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Summary (COT Matrix)
The BEAR (Price) and BEAR (Leverage) trends under Q2 accumulation as seasonal high approaches on the first week of March position coffee as bear opportunity for more than a year.
Price
Interactive Charts: JO, COFFEE
A negative long-term trend oscillator (LTCO) defines a down impulse from 31.82 to 19.07 since the second week of December 2014 (chart 1). The bears control the trend until reversed by a bullish crossover. Compression (white circles) within the CEC cycle generally anticipates this change.
A close above 20.87 jumps the creek and transitions the trend from mark down to cause. A close above 42.02 jumps the creek and transitions the trend from cause to mark up.
Chart 1
Leverage
A positive long-term leverage oscillator (LTLO) defines an impulse and bear phase since the first week of January 2015 (chart 2). This supports the down impulse (see price).
A diffusion index (DI) of 2% defines Q2 accumulation (chart 3). A capitulation index (CAP) of 32% supports this message (chart 4). DI and CAP's trends, broader flows of leverage and sentiment from extreme distribution (red dotted line) to accumulation and extreme complacency (red dotted line) to fear supporting the bears (green arrows), should not only continue to extreme concentrations but also restrain upside expectations until reversed (see price). A rally under these trends, a sign of strength (SOS), would be bullish for coffee longer-term.
Chart 2
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Chart 3
Chart 4
Time/Cycle
The 5-year seasonal cycle defines strength until the first week of March (chart 5). This path of least resistance restrains downside expectations over the short-term (see price).
Chart 5
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