When coffee prices soared to near 16-month highs in early January 2010, the mainstream experts cited one main factor for continuing to provide upward support: Mother Nature. On this, the following news item provides all the necessary details:
"Coffee prices rallied 22% in the past year after poor weather hurt production in Columbia and Central America. Above-average rainfall and low fertilizer levels caused [2009] Columbian coffee output to fall to its lowest levels since 1974." (BusinessWeek)
But then suddenly, on January 11, the "weather-related" wind at coffee's back vanished. Coffee prices turned down in a powerful decline to the near one-month lows we see today.
In the professional opinion of one commodity strategist: "I think finally you're seeing some premium of the weather coming out of the [coffee] market." (AP)
One question: How do you know when the "premium" of certain fundamentals, such as weather, has run its course? After one day? One week? One hour? Seems there's no way of knowing until AFTER prices reverse. AND, by that time, the opportunity to position oneself for change is already long gone.
On the other hand, every one of the 13 known Elliott wave patterns adhere to strict guidelines and rules that can help provide clear upside and downside targets for market prices. In other words, with Elliott, you have a good, objective idea of where to expect change from individual price charts.
Case in point: One market day before coffee's most recent reversal, the January 8 Daily Futures Junctures Weekly Wrap-up presented the following close-up of the market.
Here, Daily Futures Junctures editor and EWI's chief commodity analyst Jeffrey Kennedy observed a zigzag pattern underway, and nearing an important, game-changing peak. (Note: A zigzag is a simple, three-wave pattern labeled A-B-C in which the top of wave B is noticeably lower than the start of wave A and wave C usually travels far beyond the end of wave A.)
The most useful piece of information to know about zigzags is this: Wave C often equals the same length as wave A. In this case, Jeffrey identified that area as 146.75. The down arrow in chart shows what would happen to prices once they reached this defining level.
And that's exactly what happened, as this close-up from the just-published January 20 Daily Futures Junctures (on-line now)makes plain.
Wave analysis is not a crystal ball and it won't always work this well. Still, it helps you limit the infinite number of future possibilities to one or two very likely probabilities. So, what are you waiting for? Get the full Elliott wave story on Coffee right away via a risk-free Futures Junctures Service subscription.