It’s time to buy coffee.
The price of coffee has been falling for the past two months. It’s down 25% since late August.
Now though, coffee is oversold and overextended to the downside, and it looks poised for at least a short-term rally.
Take a look at this chart…
Coffee closed Friday at $1.51 per pound – down from the August peak of $2.40. That’s a 25% drop in just over two months.
While commodity prices in general can be volatile, this degree of volatility is unusual…
Coffee rarely trades more than 10% away from its 50-day moving average (blue line), before it reverses and heads back towards the line.
The recent action, though, has pushed the price of coffee more than 20% below its 50-day MA. Coffee is now at its lowest price in 16 months. And it’s more oversold than at any time over the past 10 years.
Coffee is approaching support at the July 2021 low near $1.47. And two of the three technical momentum indicators at the bottom of the chart (RSI and CCI) are showing “positive divergence.”
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In other words, as the price of coffee has been making lower lows, the indicators have been making higher lows. This situation is often an early warning sign of a bounce.
So, it looks like coffee is setup for a “snap-back” rally.
Traders can buy coffee right here at $1.51 per pound and set a stop on the trade just below the July 2021 low. If coffee trades below $1.45 per pound, then traders can exit the position for a small loss. But, if coffee bounces, then there’s a lot of room for it to run higher.
The 50-day MA is an obvious upside target, as is the former support line – now resistance – at about $1.91. So, from a risk/reward perspective, buying coffee here at $1.51 per pound risks losing $0.06 for a chance to make $0.40.
That’s a good setup.
And that’s why I just showed my paid-up Delta Report subscribers how they could potentially make triple-digit gains on this setup.
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Best regards and good trading,
What commodities have you been following lately?
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