During the month of March, cocoa futures (May contract) has moved over 300 points – rising about 14%. This recent rally has helped cocoa become the best performing commodity of the year thus far. Supply/demand news created this move and continues to support it. Ghana production is expected to come in lower still. Grinding data numbers from Ivory Coast are higher, ahead of last year. All supply news seems to be favorable for a bullish market. Technically, a continued close above the 9-day moving average is also a short-term positive.
A few things are concerning though – overbought levels, profit taking and the correlation between the euro, pound and dollar. Cocoa futures are overbought, eventually there will be a correction – where is the top? The chart seems to think 2600 is a realistic next target. Profit taking seems to be creating pullbacks and possible buying opportunities, but these patterns will eventually lead to consolidation. The euro and pound could be a good indicator of the demand for cocoa. A weaker dollar will also show us what the global outlook may be for commodities in the near-term and may lead to pressuring the markets.
Cocoa May ’18 Daily Chart