December ICE Coffee futures continue to soar on Monday as funds extended their already historically large net long position. Total open interest rose for the 22nd session, reaching a record high over 220,000 contracts.
Fund traders are reacting to concerns over the Arabica and Robusta crops in Brazil and Vietnam.
Although some technical indicators are signaling an overbought market, fund traders just can’t seem to stop their buying spree. Of course, markets can’t go up forever and my hunch is this rally is going to end with an ugly finish when the funds decide it’s time to start booking profits.
The main trend is up according to the daily swing chart. The trend will turn down on a trade through $160.35. Additionally, because of the prolonged move up in terms of price and time, this market is currently in the window of time for a potentially bearish closing price reversal top. A close under 171.35 will form this chart pattern.
Another sign of weakness will be a break under the previous top at $166.90.
Based on the current price at $171.75, the direction of the coffee market today is likely to be determined by trader reaction to the steep uptrending angle at $172.35.
Overtaking $172.35 will put the coffee market in a bullish position. The first upside target is a major 50% level at $174.95. This is another trigger point for an acceleration to the upside.
A failure to overcome $172.35 will signal the presence of sellers. Breaking back under the previous close at $171.35 will indicate the selling is getting stronger. This could create enough downside momentum to drive the market into the next support cluster at $166.35 to $166.20.
The jump in price and the surge in open interest indicates that investors aren’t being shy about buying strength, even at 3-year highs. However, the funds are leading the charge and they follow The Herd Theory. This means once one starts selling or taking profits, the others will pile on and we should see the start of a tremendous break.
Keep watching for intraday closing price reversal tops to signal that the selling is greater than the buying at current price levels.