Exchange traded products indexed to coffee have been in free-fall since mid-2011 on rising supplies of the commodity and strong harvests, but prices are nearing a critical technical juncture and could finally be due for a bounce.
Over the past year, coffee futures have declined more than 40%, notes Chris Kimble at Kimble Charting Solutions.
Additionally, traders have grown very bearish on coffee, which sets up the potential for a powerful countertrend move if commodity prices can find their footing. [Will Coffee ETNs Perk Up in 2012?]
Coffee prices had been in a decade-long rally until last year’s collapse. Kimble points out that coffee is now nearing a 10-year support line and its 50% retracement level, where bounces often occur, according to technical analysis.
Exchange traded products designed to track coffee futures include iPath Dow Jones-UBS Coffee Sub Index Total Return ETN (NYSEArca: JO) and iPath Pure Beta Coffee ETN (NYSEArca: CAFE).
The exchange traded notes are small — JO has a market cap of only $28.5 million.