Coffee - What's the Forecast

Key points

• Coffee futures are experiencing a violent relief rally, surging to a one-month high driven by supply-side weather anxieties in Brazil.
• Quantitative data indicates that buying momentum breakouts in this specific commodity historically yields an unfavorable risk/reward profile across short- and medium-term horizons.
• After similar setups, one should be mindful of a potential bull trap

Coffee is rallying

Coffee has long been a volatile commodity. And given that certain people HAVE TO HAVE IT OR ELSE!!!! you can see why any shortage of supply at all can cause a massive spike in price.  

Currently, coffee futures are ripping higher on the back of adverse weather developments in Brazil. On Tuesday, coffee futures spiked 14.30 points (+5.44%) to print a fresh one-month high. Persistent rainfall across Brazil has sparked supply-side anxieties regarding delayed harvests, putting a massive bid under the market. Coffee is surging, and the chart pattern looks bullish. If I put my technical analysis hat on, I would describe the setup as a bullish continuation pattern. However, the team at SentimenTrader avoids subjective analysis and lets the data do the talking.  

As of Tuesday's close, the commodity logged a massive 5-day rate of change exceeding 13%. This represents a violent whipsaw, considering futures had washed out to a 19-month low just a we