The cocoa market has been strong early in the week only to be surprised Wednesday with a weak close. The markets inability to push beyond its most recent highs of 2130 and 2146 left many traders scratching their heads. Anyone who has traded cocoa for some time understands how fickle the cocoa market can be when it shows any lack of follow through. However, in this case one can argue that it’s not necessarily lack of follow through, rather just profit taking that could lead the market higher.
Looking at the chart, it simply seems like the market is taking a breather. I would not be surprised since none of the fundamentals have changed in the last seven days. We are still looking at a challenging growing year, not just due to weather, but because of producer’s lack of enthusiasm at building a crop at such inexpensive cocoa values. Consequently, the market will likely continue to build up the trend to levels seen back in March when it was trading around 2200. I would still highlight the many opportunities available to speculators. During any retracement, looking at inexpensive March Call options to capture value from 2100 to 2250 seems noteworthy. I would step cautiously into participating in futures contracts at these levels unless we should see a larger set back in the market.
Dec ’17 Cocoa Daily Chart