First let’s address the move in cocoa today…that had futures higher by 3.19% and intra-day trading to their highest levels in three months. Last week one can see that we found support at the 20 day MA (light blue line) as futures danced that line for five sessions before the acceleration today. Weather related news on extremely dry conditions out of West Africa combined with increased grindings out of Europe indicating a pickup in demand was the recipe for the surge today. The West African region is the world’s #1 producing region and it could affect the output of the upcoming crop. The level of precipitation of late has not been sufficient and additional rain is needed with the main crop in the key development stage.
Pay very close attention to the weather as if we do get rain in the coming weeks it may be wise to fade the rally as much of the recent move and any further advance in the coming days is likely building in crop damage/lower yields.
This is not about a trade that we missed but I bring this up because sometimes getting out of a trade and being on the sidelines can make you money (save you money) as a trader. Bearish trades were offset for clients last week at a slight profit…see previous posts. From here I will be looking to enter bearish trades from a higher level. On a trade above the 50% Fibonacci level (2390) I will start pricing out bearish trades as futures approach the 61.8% level, currently at 2466. In full disclosure this is a chart of September futures and I may chose to trade the December contract with clients.
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