Trading Opportunities Abound In The Coffee Market

By Casey Murphy | August 28, 2014 AAA

Coffee prices continue to astound commodity traders in 2014, with a year-to-date performance of 62.8%. While other commodities have been under pressure over the past several weeks, coffee prices have remained resilient. Based on the chart shown below, you can see that the spot price of coffee is trading within an extremely strong uptrend and there are few technical signals that are suggesting this trend will reverse any time soon. (For more, see: Commodities: Coffee.)

Look To ETFs When Trading Coffee

The most popular tool available to retail traders for increasing exposure to coffee prices is the iPath Dow Jones-AIG Coffee Total Return Sub-Index (JO). As you can see from the chart below, the price of the fund is currently trading within a symmetrical triangle formation. This chart pattern is formed during periods of consolidation, and a breakout of the pattern generally leads to a sharp increase in momentum in the direction of the breakout. Currently, market sentiment is favoring a move higher because the 50-day moving average is trading above the 200-day moving average. It wouldn’t be surprising to see a rush of buy orders enter the market when the price surpasses the upper trendline, which is currently at the $35.50 level. (For more, see: How To Interpret Technical Analysis Price Patterns.)

Small Cap Coffee Stocks

Currently, there are few direct methods for investing in coffee roasting operations, but one name that could be worth a closer look is Coffee Holding Co. Inc. (JVA). If you are interested in trading this segment of the coffee market, then this small-cap company trades on the Nasdaq on reasonable volume. Based on the stock chart it could be worth a closer look. Notice how the bulls recently sent the price above the 200-day moving average and how the MACD indicator is diverging from its trigger line. These bullish signals suggest that momentum will continue and that traders will likely hold their positions until indicators, such as the RSI, reach overbought territory (above 70). Long positions will probably be protected by placing a stop-loss order below the 200-day moving average, which is currently priced at $6.37. (For more, see: Coffee: The Cost Of A Cup.)

Breakout In Keurig Green Mountain

When it comes to bullish trading signals, there is no shortage on the chart of Keurig Green Mountain Inc. (GMCR). The company recently announced that it will partner with Kraft Foods Group Inc. (KRFT) to make Maxwell House and McDonald’s Corp. (MCD) pods for its upcoming Keurig 2.0 brewer. This announcement sent shares higher by 13% and has been exactly the type of move that bullish traders have been waiting for. As you can see from the chart, the sharp move higher sent the price above a key level of resistance on heavy volume. This breakout is a strong technical buy sign, and when combined with the MACD buy signal, it suggests that the momentum is unlikely to reverse anytime soon. Some short-term traders will likely choose to protect their position by placing a stop-loss order below the dotted trendline. Long-term traders will may choose to give the position some extra room by placing their stops below the swing low of $112.77 or even the 200-day moving average. (For more, see: A Primer On The MACD.)

The Bottom Line

Given the potential of a strong move in coffee prices over the weeks and months ahead, it's prudent for traders to analyze coffee-related assets. Some traders will want to wait for the underlying price of coffee to trade above a well-established symmetrical triangle pattern. Others may wish to be more strategic by trading breakouts above key resistance levels, such as those shown on the charts of Coffee Holdings Inc. and Keurig Green Mountain. Regardless of your trading style, the coffee market looks like it will be the place to be over the weeks and months ahead. (For more, see: The Anatomy Of Trading Breakouts.)

 

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