Buy a Cup or an ETF of Coffee

08/18/2014 7:00 am EST

Focus: COMMODITIES

Gregory Harmon, CMT

Founder and President, Dragonfly Capital Management

Greg Harmon of Dragonfly Capital turns to the charts to determine that a ‘Cup a Joe’ or even an ‘ETF a Joe’ might serve commodities traders well for a morning jolt.

What is better than that first cup of coffee in the morning? Coffee is literally the life blood of many Americans. I personally cannot think of doing anything until I have my first cup of strongly brewed Starbucks Sumatra each morning. So it is no surprise that the market for coffee is so closely followed. It is one of the chief commodities traded in the futures market and has an ETF (JO) for the non-futures traders. The chart below suggests that seasonally this is a good time to own coffee for a short-term trade.

chart
Click to Enlarge

The pattern in the chart is known as a 5-0 Harmonic pattern. And without a graduate level thesis explaining the ratios, the key is that CD retraced about half of BC and this gives a trade entry for a reversal higher after the moves from XA and AB. The pattern suggests buy when reverses at D with D as a stop. You may be in luck that it did not run higher fast but got caught at the 100-day SMA. So why not buy an ETF with your morning cup today?

By Greg Harmon of Dragonfly Capital

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