A noted technical analyst is making waves this week with a bullish call on coffee prices, which have been stuck in a punishing downtrend since May 2011. There are a couple exchange traded products designed to track coffee futures but they won’t replicate the spot price so investors should understand how they work before diving in.
The iPath Coffee ETN (NYSEArca: JO) and iPath Pure Beta Coffee ETN (NYSEArca: CAFE) are exchange traded notes issued by Barclays that follow coffee futures contracts.
Coffee prices have crashed after a big rally in 2010. For example, JO is down 57% from its all-time high of $81.13 a share set in May 2011. [ETF Spotlight: Coffee]
J.C. Parets at All Star Charts on Monday cited five reasons why he thinks coffee is bottoming. The story has been trending on social media early this week.
First, he pointed to sentiment. “The right people hate it,” Parets wrote on his blog. Commercial hedgers or “smart money” has been “buying relentlessly” while speculators have been selling for several years. The last time this situation occurred in 2008, coffee futures tripled shortly thereafter, he notes. [Coffee ETF Falls to Multiyear Low as Shorts Pile On]
Parets in his bullish coffee argument also cited former price resistance turning into support, bullish divergence in momentum, seasonal factors and a so-called Elliott Wave pattern. [Coffee ETF Bounce Scalds Bears]
JO, the coffee ETN, recently broke above its 50-day moving average and trading volume has been picking up recently. Since the product tracks coffee futures, it can lag the spot price when the market is in “contango.” [The Effect of Contango on Commodity ETFs]
iPath Coffee ETN
The opinions and forecasts expressed herein are solely those of John Spence, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.