Here is an interesting illustration on a commodity that we consume almost every day. I have always been a coffee fan. Of course born and raised in Turkey, Turkish coffee has been a part of our daily life. I start and finish my day with coffee and consume 4-5 cups per day. When I saw this great illustration I thought of the importance of coffee during my work day and my trading of this highly volatile commodity, so I revisited my charts. If you are a technical analyst that lives and dies by charts you see almost everything in charts, patterns and prices. So here is a brief history of coffee on how it changed America. I also share a long and medium term analysis of coffee price that you might find interesting.

Long term coffee chart goes back to 1979 and it clearly shows the importance of 280 level over the past three decades. In 2011 Coffee price tested the long-term horizontal resistance at 280 levels and pulled back. Same level was tested in 1986, 1994 and in 1997. Every time price tested the horizontal long-term resistance, it pulled back sharply except this time (at least for now).

To analyze the supply/demand dynamics in the intermediate term I’m presenting a shorter term view. On the second chart (weekly scale) 2002-2012 can be seen as a nice uptrend developing in a parallel trend channel. In 2011, price reversed from the upper boundary of the trend channel and the long-term horizontal resistance at 280. This was a strong resistance. Coffee price is now below its 200 day moving average and the RSI is below 50 levels (bearish signals). Downtrend on the RSI and on the price chart shows that Coffee is headed lower in the short/intermediate term.  I believe 200 day moving average will be an important threshold to call for further weakness or a possible reversal to the upside. If price breaches above 240 level with a confirmation from the RSI (breaching 50 level) then we will expect a re-test of the long-term horizontal resistance at 280 once again. Otherwise, we will expect the price to pullback to the lower boundary of the trend channel at 150 levels.

On January 6th I discussed government bonds for Germany & U.S. and drew attention to negative divergences on momentum indicators. U.S. 10 Year T-Notes and Euro Bund prices have generated negative divergences as they approached their previous high levels and both government bond prices tested their intermediate term resistance levels with negative divergences. The battle between bulls and bears resolved in favor of the bulls in the equity markets. With strong data from U.S. and better than expected debt sales in Euro Zone, investors said “RISK ON” in the short-term. Equity indices rebounded and bonds weakened.

Euro Bund price failed to break above 139 levels and fell below the strong resistance. U.S. 10 Year T-Notes didn’t even breach the horizontal resistance at 132 levels. We should now expect more weakness in bonds that would pull prices towards their 200 day moving averages Euro Bund: 133.6, U.S. 10 Year T-Note: 128. Weakness of this kind will help equities in the short/intermediate term. Strong resistance for Euro Bund is still at 139 levels and for U.S. T-Note at 132 levels.

From: Number Sleuth

Gross domestic product in China, the world’s second-largest economy, rose 8.9  percent in the fourth quarter from a year earlier, the statistics bureau said in Beijing. With the latest data 2011 GDP growth slowed to 9.2%. The quarterly growth was the slowest in 10 quarters. China set its  full-year growth target at 8 percent in early 2011 after its economy grew 10.4 percent in 2010. According to preliminary statistics, the country’s GDP reached 47.16 trillion yuan ($7.26 trillion) in 2011.

A December inflation decrease has fueled widespread guesses about possible policy loosening to spur the slowing economy, although analysts believe that significant easing is unlikely, since inflationary pressures still remain.The full-year inflation figure for 2011 was still up 5.4 percent from the previous year and well above the government’s full-year control target of 4 percent.

After all the economic news flow (positive or negative we don’t know the impact yet!) China’s SSE 50 Index had a strong day and closed up by 4.5%. Since the second half of 2009, China’s equity index has been trending down and in the past 6 months it has been below its long-term moving average. If we look at the RSI(14) and 200 day moving average patterns we can conclude that bull market is still far from the Chinese equities unless the index breaches above 1,800-1,970 resistance area. RSI should move above 50 levels to signal positive trend for SSE 50 Index. We need to see the index above its 200 day moving average and the RSI above 50 levels to call for positive price action in the medium/long-term.