Commodity Bulls Starting To Get A Chocolate Craving?
? ? ? Fundamentals
Cocoa bulls appear to be starting to regain their sweet tooth, as the nearly 6-month slump in prices has finally sparked buying interest by both commercial and speculative interests. Prices rallied nearly 3% and stronger European chocolate sales are adding some support to the market that had fallen nearly $250 per ton since the beginning of the year.
However, before traders get too optimistic that near-term lows may be in place, the market has to overcome potential hedge selling by West African producers, who may wish to take advantage of any speculative rally to hedge forward what is expected to be an ample mid-crop harvest assuming timely rains occur.
It would appear that we will need to see some significant upside surprises on the demand side to sustain longer-term upside momentum, though in the interim, bulls seem to have regained the upper hand.
???? Technical Notes
Looking at the daily chart for July Cocoa, we notice an upward channel forming, which could be the start of a “V” bottom technical formation, especially if we trade above near-term resistance at 2267. The 14-day RSI has turned up, with a current reading of 62.40.
Although prices are now trading above the 20-day moving average (MA), the widely watched 200-day MA is still nearly 120 points higher, and it would take a weekly close above this longer-term average to change the outlook from bearish to bullish. Once again, resistance is seen at the February 7th high of 2267, with near-term support found at the March 18th low of 2091.
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