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Has Cocoa Reached its Tipping Point?

Posted 10/05/2017 2:24PM CT | Hector Galvan

The cocoa market closed strongly Wednesday on the heels of news that we are just steps away from an important breakout level. Finally, a market that has been strangled by a relentless sideways trading range gives us a renewed vision for higher prices.  

We closed at 2088 yesterday with a high of 2092 and a previous day’s high of 2102 basis December. I would argue that the chart is leading us to a breakout above 2100. Should the market break above 2100 and close above 2114, we are likely looking at a major turnaround in the contract. A turnaround that the bulls will likely use to press the market up to the March and April highs of 2160 and 2200. Now, let it not be said that we don’t take both sides into consideration. Should the markets fail to press above 2100 we would likely fail, and once again, sell off to 2030 and then the 1980. Fortunately, the cocoa grind numbers have been coming out slightly better and illustrating that demand for the sweet confection is on the rise. In the end, I would also caution traders to keep weather in West Africa on their minds. We are approaching a time when weather can play a very important role on how fast the market moves in one direction or the other.

Dec ’17 Cocoa Daily Chart

Dec '17 Cocoa Daily Chart

 

Hector Galvan