Over the last two days, coffee prices have gone from "boiling" to "blizzard." Starting off Monday (August 23) at a soaring 13-year high, the market then took a sudden turn on Tuesday in a sharp 8% nosedive -- its biggest one-day plunge in two years.
As for what's behind the market's reversal -- the mainstream experts hardly see eye-to-eye. More like tug-of-war. Here, the recent news items below paint a very mixed picture:
- Supply Concerns: "Tight supplies are likely to keep prices of the better quality bean elevated." (Financial Times) ---- VERSUS ---- "Coffee price retreat amid speculation that a record crop in Brazil, the world's largest producer, will ease tight supplies." (Associated Press)
- Demand Woes: High prices will put a crimp in demand. ---- VERSUS ---- "Coffee consumption only gets hit if prices increase a 'great deal.' Americans don't seem to worry about paying more for coffee." (MarketWatch)
- Adverse Weather: "Concerns that Brazil is about to face dry conditions also contributed to the recent price increase."(MarketWatch) ---- VERSUS ---- "Even if the drought comes, coffee is a hardy plant that can tolerate dry conditions."(MarketWatch)
After reading what the usual sources have to say, the future outlook of coffee is about as clear as a cup of Mississippi Mud.
For clear and consistent analysis of coffee's near-term trend, EWI's chief commodity expert Jeffrey Kennedy in his August 23 Daily Futures Junctures presents the following close-up of the market's Elliott wave patterns since 2008.
Front and center, the dominant pattern underway is called a Contracting Triangle. Here, Jeffrey’s Traders Classroom Collection e-book offers this description:
"Technically speaking, contracting triangles contain five-overlapping waves that subdivided 3-3-3-3-3 AND are labeled A Through E. A 'regular' contracting triangle unfolds entirely within the area of the preceding price action, while a 'running' triangle will see wave B make a new extreme beyond the origin of wave A."
Most importantly, "horizontals occur just prior to the final wave of a sequence,” and are commonly followed by a sharp “thrust” in the opposite direction. In other words, “If you run into a contracting triangle, you know the train is coming into the station."