Can Cocoa?s Hot Streak Continue?
Today’s Spotlight Market
Cocoa futures have started the month of February on a hot streak, posting gains in 10 of the first 11 trading sessions this month.? Improved demand expectations, coupled with lower supply outlook has helped propel the Cocoa market.? There is optimism that demand from emerging market countries and China will continue to climb with wage inflation.? After starting the month at such a fast pace, can Cocoa keep this pace up?? The fundamental outlook certainly offers traders hope that prices may continue to climb, however technically overbought conditions could slow Cocoa?s ascent.
Fundamentals
Traders are expecting the main crop, which runs October through March, to equal last year?s crop.? This will fall short of the average estimate, which was looking for increased output.? The crop main crop started the season on a sour note, as heavy rains in August and September caused an outbreak of black pod disease.? The rains accelerated the spread of the disease by splashing spores from tree to tree.? The rains also contributed to an insect infestation, which also did damage to Cocoa trees.? Despite this slow start, farmers were counting on a strong finish in the second half of the growing season to more than offset the dismal start.? The Harmattan desert winds were much harsher than expected, leading to extremely dry conditions.? Despite these difficulties, traders were still holding out hope that the main crop would exceed last year?s 1.2 million tonne harvest.? This year?s mid crop, which runs April through September, is expected to fall short of last year?s figure, resulting of a smaller output for the crop year.? However, hot weather and rains in most of the Soubre region of the Ivory Coast are offering farmers hope that the mid-crop could be better than previously hoped.? This is the dry season for the Ivory Coast and farmers are hoping for at least one good rain a week through March to encourage a healthy flowering.???????? ?
Technical Notes? -? View Today’s Chart
Turning to the chart, we see the March Cocoa contract closing in on a possible test of the 3000 resistance level.? Prices have already moved above the 20-, 50- and 100-day moving averages, which can be seen as bullish.?? The next moving average of significance is the 200-day average ,which is near the 3000 level.? Prices are in an area of heavy chart congestion.?? This, coupled with overbought technical conditions, could result in sluggish price action moving forward.? The RSI indicator is currently giving a 86.7 percent reading, which can be viewed as significantly overbought.
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