September 17, 2020
IS THE CAFFEINE HIGH OVER?
Coffee gave us a good ride over recent weeks rallying $36.50 from July 15 to the 4th of September. Since then it has dropped $20.45 to the low of $115.00 made on September 15. December Coffee is trading at $117.15 as of this writing.
It is my opinion the weakness in Coffee was caused by being over stretched to the top sided and those longs getting caught by the forecast of rain in Brazil nest week. So what now? Lets look at the LAWG647 Model to see what it tells us.
According to the Model we know that December Coffee is in an uptrend. We know that it will take a close at or below $100.05 tomorrow, September 18 to reverse the trend to bearish. Yes, I agree not likely. We know at the peak the December Coffee Positive Indicator was above the 4th Standard deviation of the long term average, having entered Negative Equivalency. That simply means that the Positive Indicator had progressed to a point that it suggested an increased likelihood of a price correction. As of this writing the price has corrected to the point where both the Positive and Negative Indicators are within the First Standard Deviation of the long term average. So what to do now?
Looking ahead the Model tells us that in order to turn bearish next week Friday, September 25th the December Coffee will need to close at or below $104.80. In my opinion possible but again not likely. It is my recommendation one consider getting long between $113.50/$115.00 pick your poison. I suggest using a stop loss level in case it presses further to the downside.
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