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Cocoa made impressive upside move yesterday on strong speculative buying tied to positive chart signals and bullish expectations ahead of the North American grind data. While the chart pattern remains positive as the market closes in on the December high, the market has become a bit overbought leaving futures vulnerable to selling. Yesterday’s market action suggests traders were likely pricing in expectations for the North American grind to show a small gain. With the National Confectioners Association reporting the 4th quarter North American grind fell a slight 0.02% from the 4th quarter in 2008, the news may inspire some profit taking. While it was impressive to see the cocoa market trade higher yesterday despite the bearish currency and equity action, it was also clear that the market was being pulled higher by the strength in the London trade, which lifted that market to a fresh 32 year high. And we suspect upside leadership from London will continue to be a key driver for higher trade in the NY market. Gains in both NY and London yesterday may have been partly based on reports of rising domestic Ivory Coast prices as buyers scramble to secure tightening supplies amid ongoing concerns that bean supplies will be scarce next month due to dry conditions. Expectations for another global production deficit to be seen this year has been a driving force lifting the market to 30 year highs last month. Still, seeing March cocoa close with only modest gains yesterday also suggests the market isn’t completely immune to outside market influences. In fact, we are a bit concerned that the price action in cocoa could become more volatile and two sided up at these price levels leaving March cocoa at risk if general commodity sentiment continues to sour. We also suspect the bull camp’s resolve will be tested today since we suspect some traders will see the North American grind as being a bit disappointing.
TODAY’S GUIDANCE: Strong fundamental optimism gives March cocoa the potential to eventually trade above the December high. But in the short run, we are concerned that a somewhat disappointing North American grind along with macro economic issues may give traders a fresh incentive to take profits. However, if the weak price action in the Dollar gains traction, it could provide an offset to the grind news.
TODAY’S MARKET IDEAS: The slight drop in the North American grind may be enough of a disappointment in a market that has also become short-term overbought to trigger profit taking in March cocoa, especially since general commodity market sentiment has turned a bit negative this week.
Cocoa Market Commentary – 2010.01.21
by Terry Roggensack on January 22, 2010
Below is a sample of our Daily Commentary. To get this comment, and our daily coverage of 15 additional markets and trade ideas, visit futures-research.com for your free 2 week trial!
Cocoa made impressive upside move yesterday on strong speculative buying tied to positive chart signals and bullish expectations ahead of the North American grind data. While the chart pattern remains positive as the market closes in on the December high, the market has become a bit overbought leaving futures vulnerable to selling. Yesterday’s market action suggests traders were likely pricing in expectations for the North American grind to show a small gain. With the National Confectioners Association reporting the 4th quarter North American grind fell a slight 0.02% from the 4th quarter in 2008, the news may inspire some profit taking. While it was impressive to see the cocoa market trade higher yesterday despite the bearish currency and equity action, it was also clear that the market was being pulled higher by the strength in the London trade, which lifted that market to a fresh 32 year high. And we suspect upside leadership from London will continue to be a key driver for higher trade in the NY market. Gains in both NY and London yesterday may have been partly based on reports of rising domestic Ivory Coast prices as buyers scramble to secure tightening supplies amid ongoing concerns that bean supplies will be scarce next month due to dry conditions. Expectations for another global production deficit to be seen this year has been a driving force lifting the market to 30 year highs last month. Still, seeing March cocoa close with only modest gains yesterday also suggests the market isn’t completely immune to outside market influences. In fact, we are a bit concerned that the price action in cocoa could become more volatile and two sided up at these price levels leaving March cocoa at risk if general commodity sentiment continues to sour. We also suspect the bull camp’s resolve will be tested today since we suspect some traders will see the North American grind as being a bit disappointing.
TODAY’S GUIDANCE: Strong fundamental optimism gives March cocoa the potential to eventually trade above the December high. But in the short run, we are concerned that a somewhat disappointing North American grind along with macro economic issues may give traders a fresh incentive to take profits. However, if the weak price action in the Dollar gains traction, it could provide an offset to the grind news.
TODAY’S MARKET IDEAS: The slight drop in the North American grind may be enough of a disappointment in a market that has also become short-term overbought to trigger profit taking in March cocoa, especially since general commodity market sentiment has turned a bit negative this week.
Tags: Cocoa, Softs
About Terry Roggensack