Trade of the week: short Arabica coffee
Since the daily Arabica coffee price chart is showing negative divergence on the relative strength index, we would like to sell Arabica coffee, ideally on a minor bounce towards 17,000, with a downside target at 14,700.
(Video Transcript)
Long the NASDAQ 100 still on the up
Good morning and welcome to trade of the week on Monday 13 November 2023. We had the perfect trade on back at the end of October when my colleague Shaun Murison went long the NASDAQ 100 at 14,286. And as you can see here, we've been swiftly going up on that index ever since.
If you're still long, I would suggest you keep your longs, because it looks likely that we may actually be heading towards the 16,000 mark until the end of the year.
And if you want to move your take profit stop up, you could do so to just below the last reaction low at 15,138 if you are so inclined. So, this trade is still ongoing and looking really very good.
Long the DAX 40 still profitable
And then last week I went long the DAX 40 contract, the German DAX futures contract at 15,100. That one is also in profit by about 200 points or so.
So, either you can cash them in now if you think that we might be capped once again by this downtrend line going back to July of this year or you could just raise your take profit level to break even again, just above 15,100.
So you basically have a free trade on. It's up to you what to do. But it's still a positive trade on that one, which brings me to this week's trade of the week.
Short Arabica coffee holds promise
And what I would like to do is to go short Arabica coffee. And the reason for this is purely technical because we've got what is called negative divergence, and that happens when you're making a new high on the price chart.
the case of coffee here, the coffee price, you haven't got confirmation of that new high on the oscillator, the derivative of that price, which in this case is the Relative Strength Index over nine periods.
And here you can see we made a lower high compared to the high made at the end of October, whereas on the coffee price we made a higher high compared to the late-October high.
Correction could lead to major reversal
And when that happens, quite often you tend to get a correction against the trend, which in this case is a short-term uptrend. And it could also sometimes lead to a major reversal. And the fact that we've now fallen through the 200-day simply moving average here at 16,981 for me is negative.
Therefore, I would like to sell Arabica coffee, with the expectation being that we continue a long-term downtrend that we've seen over the last year or so with regards to the coffee price.
So, this week's trade of the week is to go short Arabica coffee, ideally on a bounce back towards the 17,000 mark, with a downside target of around 14,700 and a stop loss just above last week's high at 17,485.
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