Wake Up and Smell the Coffee

01/16/2014 6:00 am EST


Gregory Harmon, CMT

Founder and President, Dragonfly Capital Management

Traders everywhere have been waiting for this commodity to turn higher for a long time, notes technician Greg Harmon of Dragonfly Capital.

The market for coffee (JO) has been a disaster since I can remember. It has been so bad for so long that it has offered multiple opportunities to try to trade a reversal that have failed. I count six in the last 15 months.

When a market gets like this it takes a very strong confirmation for me to get interested. This confirmation may be about to happen in coffee. It has bounced off of a bottom at 101 and been rising since late November. But it is back at the 200-day simple moving average (SMA) for the first time since October 2012. And what did it do then? It failed and fell 55% over the next 12 months. The last time that coffee closed over the 200-day SMA was in September of 2011. A close over this level is a big deal.

Click to Enlarge

And it has a positive set-up as it sits there just underneath. It is consolidating in a symmetrical triangle using the 200-day SMA as the top. A break over the triangle carries a measured move higher to 126 and then 127.50. This would be solidly over the 200-day SMA. With a rising relative strength index (RSI) and MACD, this should be enough to get involved. Will it happen this time or will it be just another time that the market takes your money?

By Greg Harmon of Dragonfly Capital

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