Caution: This Commodity is Extremely Hot!

The "secret" of coffee's November breakout to 10-year highs is in this Elliott wave pattern

by Nico Isaac
Updated: December 10, 2021

Every now and again I have to pad my daily news feed with some cute cat video or uplifting anecdote about two nonagenarians celebrating their 70th wedding anniversary. It's my way of buffering against the non-stop, spewing firehose of natural disasters and political divisiveness.

On December 10, I found the perfect bad-news panacea in the MadeMeSmile sub-Reddit. It had a picture of a Starbucks coffee cup on which the barista wrote the words "Secret Message" with an arrow pointing down for the customer.

The bottom warning, "Careful, the beverage you're about to enjoy is extremely hot" had been modified into this flirtatious note: "Careful, you're extremely hot!"

Never mind the last time I went into a Starbucks, the barista wrote, "Forgot 2 charge 4 second shot" on my cup! Clearly, I'm not holding any grudge over that one.

The point is this cute message put a smile on my face just as the coffee market has been repeatedly putting a smile on the faces of investors this year. In fact, as far as commodities go, coffee is extremely hot! Like, the hottest of all.

Here, these recent news items pour over the details:

December 8 Fortune:

"It's not just the caffeine that's making the market jittery... Coffee prices rose to a decade high on Wednesday, fueled by a shipping crunch, a spike in demand, and dry weather."

December 10 CNBC:

"Coffee prices are at 10-year highs, and analysts say they have much further to go.

"A perfect storm of events [has been] conspiring to give our beloved bean a boost."

December 9 Money Markets:

"America Runs on Coffee: Coffee Prices Rise More Than Any Other Commodity"

But let's pump the breaks for a second. Coffee's rally to a decade high didn't unfold in a straight line. In fact, after soaring to a 7-year high in July, coffee prices cooled significantly, falling 25% into month's end, only to trend flat-to-sideways until finally breaking out to the upside in November.

It's easy to forget that long period of going-nowhere-slowly with coffee prices soaring today. But the harsh reality is, it's during these lackluster periods when the biggest opportunities are born.

In coffee's case, our chief commodity analyst Jeffrey Kennedy recognized the market's bullish potential as far back as September 29. On that day in his Daily Commodity Junctures, Jeffrey detected his own "secret message" on the price chart of coffee; namely, the months'-long sideways price action underway since late July was unfolding as an Elliott wave contracting triangle.

For newbies, here is the beginner's guide of the contracting triangle pattern:

Triangles are easy to spot on a chart. They are like neon signs, moving slowly along in a sideways fashion. A triangle can occur only in a position prior to the final move -- usually, as wave 4 of a 5-wave impulse.

Triangles are complex, and they can try your patience. But the wait is worth it, because once complete, triangles are followed by a "thrust" -- a sharp, swift, final move in the direction of the previous trend.

So, in his September 29 Daily Commodity Junctures, Jeffrey showed this chart of coffee. The contracting triangle underway required one more leg down, after which, the stage was set for a powerful thrust to new highs:

"Wave patterns in coffee argue for selling to 190.75--188.65. Ideally, the expected wave down will finish a fourth-wave triangle that began in July.

"Thereafter, will look for signs that the larger uptrend is again under way"

This next chart captures the price action that followed: coffee continued lower to finish the contracting triangle. And then, in early November, prices broke out in a sharp surge to 10-year highs.

The secret is out: Commodity price trends don't rise and fall or even stall at random. They're driven by the collective psychology of investors, which unfolds as Elliott wave patterns.

Find out what patterns our Commodity Junctures Service sees underway on the price charts of the biggest names in softs, food, grains, livestock, metals and more.

See below!