Jeff Clark's Market Minute

A Coffee Trade to Start the Week

It’s time to buy coffee.

The price of coffee has been falling for months. But, after the action last week, coffee looks poised for at least a short-term rally. Take a look at this chart…

After peaking in October, the price of coffee has fallen from $1.22 per pound to $0.94. That’s a 23% drop! In six months!

That sort of a decline has pushed the price of coffee down to its lowest level in a decade. 

So, why do I think coffee is ready to rally right now?

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This labels the metal as "critical for national economy and security."

Why did Trump make this move now?

According to the man who predicted Trump’s election and one of his first executive orders…

It’s to prepare for a historic event that could spike the price of this white metal 10x as its global supply is pushed to critical lows.

Well… take another look at the chart and notice the action the last time coffee bolted higher after setting a new yearly low. That was last September – just before the price of coffee spiked 25% higher in one month. Notice how the rally started when the price of coffee broke and held above its 20-day exponential moving average (EMA) line (the red line on the chart).

The 20-day EMA is a short-term support/resistance level for coffee. If the price of coffee is trending above the line, then coffee is in rally mode. If the price is trending below the line, then coffee is in a downtrend.

When coffee made a sustained move below its 20-day EMA last November, it kicked off a six-month-long decline in the price.

Yes… there was some choppy action in January, when it looked like coffee could be ready to rally. But, the price couldn’t hold above its 20-day EMA for more than a day or two. And the decline resumed.

Now, though, the chart looks quite similar to the pattern that formed the low last September. The price of coffee has been falling for several months. It has bounced off a multi-year low. And it just crossed above its 20-day EMA.

There’s no guarantee, of course, that coffee will hold above its 20-day EMA. It could just chop around again for a few days before resuming its decline – just as it did in January. But, I like the look of this setup for a low-risk/high-reward trade. Traders who buy coffee right here can stop out of the trade for a small loss if the price drops back down below the 20-day EMA.

On the other hand, if this is the start of a rally similar to what we saw last October, then buyers of coffee today could be looking at big gains over the next few weeks.

Best regards and good trading,

Jeff Clark

Reader Mailbag

What other sectors do you think are poised for a rally? What are you currently trading?

And as always, you can send any other trading stories, questions, or suggestions to [email protected].

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