Cocoa Bulls Stir from Recent Slumber

The Commodity Trader’s view - In the Commodity Trading Guide we have been reluctant to drop our bullish stance in Cocoa, but came very close to doing so recently. Now, s/term bulls have, phoenix-like, risen from the ashes within a triangle-type consolidation, but a clear break from this pattern is still needed.

• MONTHLY CHART – CONTINUATION: Last year’s sharp reversal in trend found support around the old 2005 high, and not far above the 76.4% level. A type of triangular consolidation has been developing this year, following the initial strong bounce off this support. This is clearer on the Daily chart…
• DAILY CHART – JUL-09: Note how price action has been contained by 76.4% levels here. A recent minor break of the key 2300 support has proved false – we had been looking at the accompanying positive RSI divergence which was a s/term bullish clue. The close above 2519 08/11-May highs is also positive, but in the end the key resistance that must be breached lies around 2670, a s/term 76.4% level and falling resistance line. A close above this signals an initial bull break from the triangle pattern – first target a retest of the 2912/16 resistance. At this stage the 2300/2262 is underpinning key support.
• Speculative buyers on dips (probably ahead of 2400) will likely favour initial stops just below 2262 14-May low. This would be preempting a triangle break though. The more cautious may wait for that break before formulating a dip-buying strategy.

[For the complete and illustrated version of this and future Updates be sure to sign up at www.sevendaysahead.com]