Bottom in Cocoa?

January 6, 2017 2:35AM CST

The market's failure thus far to sustain late-Dec/early-Jan losses below over two weeks of former 2181-to-2144 support-turned-resistance and recovery overnight above 27-Dec's 2272 nondescript high that we believe ended a 4th-Wave triangle pattern detailed in the 240-min chart below provides the first smaller-degree proof of "non-weakness" that we believe could morph into a larger-degree base/reversal environment.  As a direct result of this week's recovery, Tue's 2119 low is considered one of developing importance and our new short-term risk parameter from which any non-bearish decisions like short-covers and cautious bullish punts can now be objectively based and managed.

Cocoa 240

The daily log scale active-continuation chart below shows the developing potential for a bullish divergence in momentum, but commensurately larger-degree proof of strength above 14-Dec's 2337 larger-degree corrective high and key risk parameter remains required to CONFIRM this divergence to the point of longer-term bullish action.  In effect the market has identified 2337 and 2119 as the key directional triggers heading forward.  Traders are advised to basically toggle directional biases and exposure around this range on a level consistent with their own personal risk profiles.

Cocoa Daily

Cocoa Weekly

Ancillary evidence that warns of a broader base/reversal-threat environment comes in two forms:

  • the market's return to historically bearish sentiment levels and
  • its proximity to the extreme lower recesses of a 3775 - 1983-range that has encapsulated it for the past NINE YEARS.

Indeed, the current 16% reading in the Bullish Consensus (marketvane.net) measure of market sentiment is the lowest since Dec 2000!  Granted, further proof of strength above our longer-term risk parameter at 2337 remains required to confirm a bullish divergence in momentum of a SCALE SUFFICIENT to break the longer-term downtrend and really render this grossly bearish sentiment indicator as APPLICABLE to a broader base/reversal count.  But as a result of this week's recovery above 2272, we can state with confidence that Mon's 2119 low serves as a reliable low and support from which early non-bearish decisions can be objectively based and managed.

These issues considered, shorter-term traders with tighter risk profiles are advised to move to a neutral/sideline position and first approach setback attempts to the 2200-level OB as corrective buying opportunities. A failure below 2119 will negate this call and warrant it cover.  Longer-term players are advised to pare bearish exposure to more conservative levels and reverse into a cautious bullish policy on a recovery above 2337.

Cocoa Monthly

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