Cocoa Bulls Take Foot Off the Gas Pedal
Today’s Spotlight Market? -? Cocoa futures have fallen for three consecutive sessions amid speculation that the supply situation will improve.? The West African harvest is expected to pick up the pace in the coming weeks, as the Ivory Coast and Ghana are expected to see seasonal dryness.? The dry weather should allow farmers to accelerate their harvesting of crops.? Cocoa has also found a bit of selling pressure due to traders taking profits going into year end.? The price of Cocoa had increased by more than $600 per ton since July, and traders are content lightening their positions at this time.
Fundamentals? -? The progress of the West African harvest has been very good up to this point, and the weather suggests that there should not be any impediments going forward.? Ivory Coast arrivals have also been very healthy to this point.? While these developments are favorable for the supply situation over the short-term, the longer-term situation suggests supplies could be stressed for several years to come.? According to the International Cocoa Organization, Cocoa consumption is expected to outpace output by 70,000 tons for the 2017-2018 crop year.? This suggests that any sort of sell-off could be short-lived.? Analyst forecasts suggest prices could rally up to the $3300-3500 range by the end of next year.
Technical Notes? -? View Today’s Chart
Turning to the chart, we see the March Cocoa contract forming a small double-top formation, suggesting prices could trade down to support at the 2650 mark.? It is interesting to note that the RSI indicator peaked in early December, and that the indicator was diverging from prices.? The move below the 20-day and 50-day moving averages can be seen as negative over the short-to-intermediate term.? Failure to hold the 100-day moving average may add to the negative sentiment.
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