KC1: Coffee Futures Make a Breakout & Consolidate Bullish Trend – Near 12 Month Highs

After trading sideways over the past 3 months in a decreasing triangle formation, the coffee market breaks the triangular pattern to the upside.

KC1 contracts reached a recent high on December 19, 2023. However, from there the market started to trend laterally in ever decreasing swings. This price action gave rise to a very large triangle on the day chart.

Yesterday the market finally broke out of the triangle, heading higher. Today’s candle has confirmed the breakout, with another rally for the session. There have been various reports of lower warehouse stocks, in particular from Europe. Also important coffee associations such as ICAFE that have issued reports stating a decline in exports from the same period last year.

In the US markets, we see that the last commitment of traders (COT) shows another increase in the ICE Coffee futures contract for the week ending March 26. The part of the COT report to look at is the managed money report.

Money managers have been adding to their long positions since October 2023. In the last report this sector of the market accounted for 63,213 contracts. With an increase over the previous report of 3,401 contracts.

Notably, long positions for money managers in October 2023 were at 17,404. Typically, as money managers add to their long positions market price for the commodity in question rises. In fact, the price of KC1 contracts on the first trading session in October 2023 was around $146.10.

Technical View

The day chart below for KC1 shows a clear breakout of the triangle pattern (yellow area) with yesterday’s candle. We can also see that the market is clearly above the Ichimoku cloud indicating a bullish trend.

Before jumping to conclusions, let’s also look at other technical indicators and price levels. The market has bounced on an important resistance level (red line) set back in April 2023. Today’s failure to close above indicates the current bullish trend may be ready for a correction.

To add to this assumption, we can also see that the RSI has just crossed over the 70 level. Although we would need to see the RSI close below 70 for more certainty, it’s also a factor that indicates the rally may run out of steam soon.

If a retracement were to occur the next major support level (green line) would be at $196.15, which was set in June 2023. Another minor support level (black line) can be found at a previous high in December 2023 of $201.35.