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The benchmark for coffee is the "C" contract for Arabica coffee traded on the Intercontinental Exchange (ICE). One coffee "C" futures contract represents 37,500 lbs of exchange-certified Arabica coffee produced. This contract surged 3.7 per cent or $8.6 on Friday to finish at $ 240.4.
Long-term trend
The coffee C futures bottomed out in late 2001, after recording a multi-year low of $41.9. Since then it has been on a long-term bull-run. This uptrend line is still intact. As long as it trades above $118, the long-term trend remains up. However, it needs to be noted that whenever this future move beyond $260 it turns very volatile and is unable to sustain its uptrend. In the past it has reversed four times (1977, 1986, 1994 and 1997) from $260. Investors should, therefore, watch out for sharp reversals if the contract moves above this resistance. Subsequent resistances for the contract are $318 and $337.
On the other hand, drop below its 2008 peak of $171 can pull it down to $130. Longer-term charts show that the contract is consolidating in a wide band between $41 and $337.
Intermediate-term trend
Coffee futures face key resistance in the band between $250 and $260 in the weeks ahead. The weekly and monthly indicators and oscillators are featuring in the over bought level signalling caution. Monthly relative strength index (is at 80 level) has reached overbought area where it historically reached during the year 1985 and 1994. Moreover, the weekly RSI and Williams %R oscillator are showing negative divergence indicating the possibility of trend reversal in the medium-term term. Also, the coffee futures is testing its upper boundary of the Bollinger Bands in weekly and monthly charts, which indicates an overbought state.
Therefore it is unlikely that the coffee futures can move beyond $260 in the medium-term. In that scenario, coffee futures can decline and find supports at $217 and $200 in the intermediate-term. Upward target on a conclusive break through of $260 is $276. Emphatic decline below $185 will reverse the current intermediate-term uptrend.
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