(KC) Labored Recovery, Rejected Fibs Threaten Coffee Reversal, Re-Expose Bear

Technicals, October 31, 2011; 7:00am

Overnight's break below 20-Oct's 229.70 low detailed in the 240-min chart below severely threatens our broader base/reversal count introduced in early-Oct as this month's 219.80 - 252.50 recovery attempt is rendered a 3-wave sequence as labeled. Left unaltered by strength above 25-Oct's 252.50 high, this 3-wave structure is considered a corrective affair that, on the heels of Sep's sharp plunge, warns of a resumption of that decline to new and potentially significant lows below 03-Oct's 219.80 low. This resumed bearish threat was discussed in 25-Oct's Technical Blog following the market's rejection of the 1.000 progression Fibonacci relationship in which the phase of Oct's recovery from 17-Oct's 228.35 low was the same length (i.e. 1.000 progression) of the initial 219.80 - 243.55 rally at 252.10. 25-Oct's intra-day high was 252.50.

Perhaps the past week's relapse is a larger-degree correction of Oct's entire 219.80 - 252.50 within a major base/reversal environment. But if this is the case, then this market must break the impulsiveness of this clear and present intermediate-term downtrend. And minimally, this would require a recovery above Fri's 236.70 high.

In addition to the acute Fibonacci progression relationship discussed above, it's also interesting to point out that last week's 252.50 high came within 34 ticks of the (252.84) 50% retrace of Sep's 290.85 - 219.80 decline shown in the daily log chart below. Combined with the labored, 3-wave appearance of Oct's recovery attempt, these rejected Fibonacci relationships contribute to a broader bearish scenario that warns of a resumption of this year's broader decline and define 25-Oct's 252.50 high as the risk parameter this market now must recoup to negate this bearish count and resurrect a broader base/reversal scenario.

From a very long-term perspective shown in the weekly log chart below, this year's sell-off attempt from May's 308.90 high remains arguably a 3-wave and this corrective structure, holding the 38.2% retrace of Feb'10 - May'11's 128.25 - 308.90 rally whilst eroding bullish sentiment to its lowest level in over two years. Obviously, 03-Oct's 219.80 low is a hugely important technical level and condition as its break would threaten this long-term bullish count and reinforce a bearish one that could have grave implications.

These issues considered, traders are advised to move to a neutral/sideline policy with 219.80 and 252.50 this market's key directional triggers. Short-term strength above Fri's 236.70 high may tilt the directional scales back to the bull side, but not enough to warrant moving back to a bullish position. Per this policy shift, traders are also advised to cover the Dec 250 / Jan 270 call diagonal spread recommended in 13-Oct's Trading Strategies Blog at-the-market.

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