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Cocoa Bulls Stir from Recent Slumber

29 May 2009

In the Commodity Trading Guide we have been reluctant to drop our bullish stance in Cocoa, but came very close to doing so recently. Now, s/term bulls have, phoenix-like, risen from the ashes within a triangle-type consolidation, but a clear break from this pattern is still needed.

MONTHLY CHART – CONTINUATION: Last year’s sharp reversal in trend found support around the old 2005 high, and not far above the 76.4% level. A type of triangular consolidation has been developing this year, following the initial strong bounce off this support. This is clearer on the Daily chart…

DAILY CHART – JUL-09: Note how price action has been contained by 76.4% levels here. A recent minor break of the key 2300 support has proved false – we had been looking at the accompanying positive RSI divergence which was a s/term bullish clue. The close above 2519 08/11-May highs is also positive, but in the end the key resistance that must be breached lies around 2670, a s/term 76.4% level and falling resistance line. A close above this signals an initial bull break from the triangle pattern – first target a retest of the 2912/16 resistance. At this stage the 2300/2262 is underpinning key support.

Speculative buyers on dips (probably ahead of 2400) will likely favour initial stops just below 2262 14-May low. This would be preempting a triangle break though. The more cautious may wait for that break before formulating a dip-buying strategy.

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