Cocoa Reaffirms Base/Reversal Count, Defines New Bull Risk Levels

January 18, 2018 7:00AM CST

Yesterday's bust-out above the past month's 1950-area resistance reaffirms our base/reversal count introduced in 03-Jan's Trading Strategies Blog and leaves new smaller- and larger-degree corrective lows in its wake at 1894 and 1836, respectively. These levels now serve as our new short- and longer-term risk parameter from which a recommended bullish policy can be objectively rebased and managed. Former 1950-area resistance would be expected to hold as new support per any broader bullish count.
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On a broader scale the market has thus far only reverted to the middle of the past year's range shown in the weekly log scale chart below, so we're not over-expecting to the upside. But early-Jan's combination of a bullish divergence in momentum, the market's proximity to the extreme lower recesses of the past year's range and a complete 5-wave Elliott sequence down from 08-Nov's 2228 high has nonetheless resulted in at least another intra-range correction of Nov-Dec's 2228 - 1804 decline and possibly a run at the upper-quarter of the broader range.

The very long-term directional jury remains out as to whether the price action from 03May17's 1772 orthodox low is still a corrective/consolidative affair ahead of an eventual break below 1772 OR part of a broader base/reversal environment. 08-Nov's key 2228 high serves as the gateway and long-term risk parameter to a reversal higher that could be major in scope.

These issues considered, a bullish policy and long exposure from 1900 OB remains advised with protective sell-stops trailed to 1893 for shorter-term traders and 1835 for longer-term players. In lieu of such weakness further and possibly accelerated gains are expected straight away.

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