The price of coffee is up 10% since we last looked at it back in March.
And while it might be a good idea to take some profits off the table in the short term, there are bigger gains ahead for this commodity.
Let me explain…
Take a look at this weekly chart of coffee’s prices…
In March, I noted that coffee was breaking out of a bullish falling-wedge pattern. The chart also showed positive divergence on the moving average convergence divergence (MACD) momentum indicator.
[ad#Google Adsense 336×280-IA]This is a powerful pattern that almost always results in a strong move to the upside – especially when it happens on a longer-term weekly chart.
I was looking for an initial move up toward the first red resistance line at about $1.48 per pound.
And that’s what has happened.
Now, this is a natural place where traders could book profits. That’s a 10% gain in a little more than three months… and the chart is hitting resistance.
But it looks like coffee could push even higher.
The MACD indicator has continued to rally along with the price of coffee. In other words, as the price has rallied, the momentum behind the move has grown stronger. This is a sign of a strong uptrend – one that should continue higher in the weeks ahead.
The easiest way to trade coffee is through the iPath Bloomberg Coffee Subindex Total Return Fund (JO). This exchange-traded note (“ETN”) uses the futures market to track the performance of the price of coffee.
Here’s a look at that chart…
As you can see, JO does a pretty good job of tracking the price of coffee. There is some mild underperformance due to the time decay of trading futures contracts. (Like stock options, futures contracts usually include a premium for time value.) But if you bought JO back in March, you’re sitting on a 7% gain today.
This chart still looks bullish to me.
Normally, as a trader, I’m quick to take profits on trades as the charts run into resistance. But I’m willing to give coffee a little more room to run right here. There’s more upside ahead.
Best regards and good trading,
Jeff Clark
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Source: Growth Stock Wire