Here at the close of March 9, 2009, we find coffee futures at the edge of a precipice yet again.  For a coffee bull, this setup has fooled us twice already within the last 5 months.  It occurred before the all out collapse in futures prices in October, and it occurred again at the market lows in December.  And here we are again. 

For those new to the mind numbing art of technical analysis, this chart may not look like anything useful to you, and alas, you might be right.  Time will tell.  But it does show us my two favorite technical indicators for the coffee futures market.  The indicator on top, which is accompanying the daily price bars is called the Relative Strength Index, or RSI.  The one on the bottom is called the MACD Histogram.  For those interested in knowing how these are calculated, or what exactly they indicate, I highly recommend buying, reading, and rereading A. Elder’s Book ‘Trading for a Living’, or simply drop me a question.

Both of these technical indicators scream the same thing as of today, that the market has hit an intermediate to a longer term bottom.  This comes at a time when the previous market low of $1.05 was tested, broken, and eventually held by day end.  And it comes at a time when commercial interest is heavily supporting the market, as can be seen in the COT chart from my previous coffee futures post.  From a technical perspective, it is hard to find a better, low risk opportunity to enter a market.  All indicators are flashing go, and you can enter with a tight stop loss, risking less than $1,000 dollars to test the entry, as the stop loss can be place just under today’s low at $1.0425. 

Again, these indicators over the last 5 years have been over 80 percent accurate when used together…until the end of 2008, when all indicators became worthless and fear plagued the markets.  Can we trust them again, or are coffee futures still under external market pressures?  I’m keeping my fingers crossed and entering here with a small position, long one may coffee future, and hedging with one may $1.05 coffee put option.  For those puzzled over my addiction to coffee futures, you can read why they are the best investment for 2009 and 1010.