Gunzberg notes that traders should approach coffee with caution because the commodity’s usual drawdowns last long and are deeper than the one that ended in October 2013.
“Historically, the major drawdowns have lasted on average about 5.5 years with a loss of 81.1%. The gains from trough to peak on average with the exception of the 2008 financial crisis period lasted 4.8 years with average gains of 387.1% that includes the gain between 2011-2011. The last drawdown ending 10/31/2013 only lasted 2.5 years and was only down 64.8% before gaining 30.1% until now. If the next drawdown looks like the past, it is possible to see a downward spiral for another 2.5-3 years with a loss of 58.6%,” she wrote.
iPath Dow Jones-UBS Coffee Total Return Sub-Index
ETF Trends editorial team contributed to this post.