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Further Cocoa Slide Reaffirms Correction, Defines New S-T Bear Risk

Posted 06/01/2018 8:24AM CT | RJO Market Insights

This week’s continued slide reaffirms at least the intermediate-term downtrend and leaves smaller-degree corrective highs in its wake at 2540 and 2642 that serve as our new micro- and short-term risk parameters the market needs to sustain losses below to maintain a more immediate bearish count. Its failure to do so will confirm a bullish divergence in momentum that, for reasons we’ll discuss below, could define the end or lower boundary of a larger-degree bull market correction.
 Cocoa Jul '18 240min Chart
Cocoa Daily Chart
While the extent of the past month’s relapse is sufficient to conclude 26-Apr’s 2943 high as the END of a textbook 5-wave Elliott sequence from 22Dec17’s 1804 low, this relapse falls well within the bounds of a mere correction given the magnitude of Dec-Apr’s rally. Indeed, as shown in both the daily log scale chart above and weekly log chart below, this relapse has retraced exactly 38.2% of Dec-Apr’s 1804 – 2943 rally. And we would look for proof of waning downside momentum and a confirmed bullish divergence from this general area to reinforce a count calling for an eventual resumption of the secular advance. In lieu of such a bullish divergence in mo we do not want to underestimate the market’s downside vulnerability given the recent returned to historically frothy levels of market sentiment typical of broader PEAK/reversal environments.
Cocoa Weekly Chart
Finally, while it’d be premature at this juncture to conclude the end of the past year’s very impressive rally, the monthly log scale chart below shows the market only back to the middle of a 1756-to-3775-range that has contained it for the past 10 YEARS. If there’s a condition that warns of aimless whipsaw risk for a spell, it is this market’s position deep within the middle-half bowels of a massive range.

In sum, all previously recommended bullish policy has been nullified for even long-term players as a result of this week’s continued losses. Shorter-term traders remain advised to maintain a cautious bearish policy with strength even above 2540 and certainly above 2642 threatening this call to warrant paring or neutralizing bearish exposure and warning of a turn back north that would ultimately mean a return to a bullish policy on a subsequent corrective retest of the rejected/defined low. In lieu of such strength above 2540 and 2642, further and possibly accelerated losses should not surprise.

Cocoa Monthly Chart

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