What’s wrong with Cable?

The Macro Trader’s view:

After a solid rally away from the lows stretching over 3 months, much of June has been characterized by sideways trading. Cable seems to have has lost its way. What has brought about the current spell of directionless trading? Will it resolve itself into a continuation of Sterling’s rally against the Dollar or will there be a retest of the lows?

The rally which begun back in March was, in our judgement, driven by the realisation that earlier forecasts which predicted the UK economy would be the worst affected of the G7 economies in the current down turn, had been proved wrong.

Moreover, data began to show the UK hitting a bottom in the recession ahead of the other leading economies and moved on to predict recovery in the 3rd or 4th quarter of this year - notable reports were the PMI Services survey and NIESR GDP estimate, and housing data was also supportive.

What then, has changed? Has the data begun to point to a double dip or has the US economy suddenly begun to accelerate out of recession, with a familiar V shaped recovery? The answer to all of these questions is no. The UK is still releasing data consistent with recovery expectations and the US economy continues to show gradual (if unspectacular) improvement with growth expected to resume late 4th quarter 2009 or 1st quarter 2010. The only material change among the major economies is the Euro zone, which looks to be further away from recovery than recently thought.

So why is Cable looking confused? The Bank of England Governor has sought to play down recent bullish data, saying the recovery still looks uncertain and a long hard slog back to growth is expected. This is the same group of policy- makers that failed to recognise the severity of the looming recession until it was upon them, and the same group that have consistently forecast a collapse in inflation that has yet to materialise. Conclusion? Take their utterances with a pinch of salt. The Bank is being cautious because it does not want to risk building pressure for a tighter policy, forcing it to act prematurely and risk killing the recovery.

The Bank is clearly taking the line that it would be better to even allow a “little” inflation to take hold (which they see a correction) as an easier and more familiar fight.

What then of the US? The Fed did moderate its language in yesterday’s FOMC policy statement thereby easing concern over deflation. But it reiterated that rates would remain at the current low levels for an extended period. Not much new there. But they also repeated their view that the economy was set to recover over the time-frame previously stated.

In short, the current environment sees both the Fed and the Bank of England taking a cautious approach to recovery signs in their respective economies, leading to a state of inertia among traders who had already begun to doubt whether the evidence they had seen of growth was real or no more than a pause in the recessionary environment.

We judge the UK is set to recover this year and the longer the Bank delays in changing policy, (although to act now would be premature) the stronger that recovery will be, which we expect to act as strong support for Sterling over the coming months.

The Technical Trader’s view:

WEEKLY CHART

The market is still stagnating around that 38.2% Fibonacci retracement. We’re frustrated.

We think there are good fundamental reasons for it to go further.

But it just ain’t doing it yet. Look closer.

DAILY CHART

The tedious sideways price action is at least testament to the resilience of the market.

For there seems little appetite to sell off.

But a break up through the 1.6661/1.6802 band would certainly be reassuring and lead to further buying

Mark Sturdy,John Lewis
Seven Days Ahead

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

EUR/CHF Springs to Life from Key 1.5000 Support

The FX Trader’s view - In recent weeks EUR/CHF price action has been lacklustre, an earlier bull signal looking to be premature. But underwater s/term bulls, having sailed close to the wind just above 1.5000 key support for a while now, have abruptly changed tack, with a course set for higher once more.

• WEEKLY CHART: The slip back from 1.5447 Mar high has been viewed as corrective/temporary, with another bull leg expected in due course. Price action refused to break below the key 1.5000 area. First resistance from the falling resistance line has now been violated.
• DAILY CHART: It is interesting how well support around 1.5000 has continued to be effective – Wed’s surge finally validates our recent bullish stance. With recent 1.5230s highs now breached our initial focus is on the 1.5447 16-Mar high and 1.5575 76.4% level. But then note the higher 1.5881/83 (the next 76.4% level and 15-Dec high). This is a key resistance/ target area, with an equality target nearby too, 1.5875 (the 1.4576-1.5447 upleg extended from 1.5004 18-Jun low). A bull channel top projection also currently runs through here. First support now offered by those old 1.5230s highs, while 1.5000 continues to hold the key to an unfolding bull scenario.
• In the FX Trading Guide prior longs established above 1.5178 (a previous technical level) were patiently holding stops just below 1.4991 20-Feb high, targeting 1.5440 or 1.5550/75 for partial profits. Stops may then raise to below 1.5230, balances targeting the 1.5800/50 area.

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

Crude Bears Lower the Tone

The Commodity Trader’s view - We have been bullish in Crude Oil for some time now, but recently started to look closer for evidence of a temporary pullback phase – particularly after the market had reached a certain Fibonacci projection level. This correction is probably now underway.

• WEEKLY CHART – CONTINUATION: On the continuation chart it was a break above 50.00 (area of the major Jan-07 low) that gave an initial bull signal. The recovery has nearly retraced to the 38.2% level around 76.30, but a dip is expected before this is tested.
• DAILY CHART – AUG-09: A medium term base eventually completed in May – in some respects we have been waiting for a post-break pullback. We had a Fibo projection at 74.50 which was almost reached (but marginally exceeded on the Jul contract). This is related to the fact that the 76.4% pullback level neatly coincides with the 50.76 21-Apr low (see US Dollar Index 11-Jun Update for further detail of method). In the Commodity Trading Guide we said we didn’t expect a deep slip back. Two possible support areas are  the 38.2% level which currently combines with a projected channel base  the 50% level which combines with the 58.71 Apr high, with rising support and falling return line just below, near 57.00.
• At this stage it is unclear if the higher, 38.2% support will hold or not. Buyers on dips will, in any case, likely favour entry at/above 59.00, with initial stops nicely below that falling return line (57.00 and falling). Partial profits probably targeted towards the 73.90 11-Jun high.

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

USD/CHF Base to Complete Soon

The FX Trader’s view - With a recovery phase in the US Dollar now deemed to be in progress (see last week’s US Dollar Index Update) we now look at the technical levels on the USD/CHF chart, and what could give this pair a boost.

• WEEKLY CHART: From a longer term perspective the previous erosion of the projected bear channel top was the first sign that bulls were gaining strength at the expense of the long term bears. Good support has been found from near a 76.4% pullback level.
• DAILY CHART: Initial recovery from the early Jun low found clear resistance from near the 1.0974 13-May low. This, and the higher 1.1027 38.2% level, offers first key resistance here, with breaks above these confirming that a base is in place. But a further hurdle comes in at 1.1157/64, 19-Mar low and 50%, ahead of the bear channel top projection around 1.1250 just now. So much work must be done before longer term bulls can start reasserting control.
• Meanwhile, for speculative bulls we had suggested a 1.0770-30 buy area in this week’s FX Trading Guide, with preference towards the high end of this. Fortunate longs thus triggered (1.0758 low seen) had initial stops just below the 1.0648 11-Jun low, aiming for 1.0980/1.1000 for partial profits, and then raising stops to just below 1.0758. More profit-taking may be targeted towards 1.1150.

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

The UK Gilt Market looks vulnerable at these better levels

The Technical Trader’s view:

MONTHLY CONT. CHART

Like other bond markets, the Gilts are tempting the bears with the possibility of a Top.
The Double failure at 125 is very bearish. But the initial pull-back from the highs at 125 has found support at the Prior High at 116.08.
But will that hold?

DAILY Cont. CHART

[Daily continuation charts are needed in the absence of substantial price action in the front month contract.]

Note the interesting completion of a large Double Top (surely?) and then the retracement of the market recently back through the completion level at 116.52. But only as far as the falling diagonal from the lows at 117.80 currently. The Gap may yet be covered (requiring a trade to 117.77) but it may not. And a new failure and descent back down through the 116.52 low would set the seat on a renewed and confirmed bear market. Now look closely at the Sep 09 chart.

DAILY SEP 09 CHART

This too looks like a failure at a prior Low – entirely consistent with a solid bear trend.
Bears should wait for a confirmed close beneath that 117.05 level before selling.

The Macro Trader’s view:

The Gilt has rallied hard over recent days as traders have begun to doubt the strength of early signs of recovery in the UK economy. Only last week, traders were confident that several weeks of improving data was evidence the UK recession was coming to an end and an early return to growth was imminent.

With a substantial fiscal and monetary stimulus in place, traders we had been concerned the authorities wouldn’t act fast enough to neutralize this in order to prevent a fresh outbreak of inflation, which together with the worst peace time public finances on record, could have led to a vicious bear market in the Gilt. The evidence for the growth optimism was clear:

- Two months of better than expected PMI Services surveys which now predict a return to growth in the service sector,

- Both the Nationwide and HBOS released house price surveys showing prices had increased month on month,

- The RICS housing market survey has improved significantly over recent months, and

- The NIESR GDP estimate looks set to predict either flat or a small positive for Q2 GDP.

Other data has supported the recovery scenario too, especially the improvement in mortgage approvals.

But recently, sentiment in the US has turned mildly negative due to doubts that business spending will be sufficient to support recovery. Also, several key Euro zone data releases have shown the Euro zone economy is further away from recovery than previously thought. And with today’s UK retail sales report showing greater weakness than expected, traders are temporarily ignoring the stronger domestic UK data and reacting to international indicators and the Gilt is enjoying a recovery. Yet the bear market in the Gilt can hardly be over. UK Government debt ratios are set to hit levels not seen since the First World war and if traders now doubt the strength of recovery, which we do not, those debt levels will only worsen.

Moreover, forecasts of CPI inflation falling to below 1.0% and close to zero have so far proved incorrect; CPI released on Tuesday, was worse than expected and rose from 2.0% to 2.2% year on year.

This makes it more likely than not that the current price action in the Gilt is only a correction. Traders hate out-of-control government borrowing and they also hate rising inflation. When the two are mixed it is usually a lethal cocktail.

If it were only the UK that was set to issue unprecedented levels of debt over the next several years, one could almost accept that the market could absorb it, albeit at slightly higher yields. But with all the major economies, especially the US with a $1.8T deficit in the same predicament, markets are only going to absorb the mountain of new debt at increasingly higher bond yields, and we judge the Bear market in the Gilt is only in its early stages.

Mark Sturdy,John Lewis

Seven Days Ahead

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

Key Support Could Trigger Bounce in Coffee

The Commodity Trader’s view - The recent drop back in Coffee has been deeper than expected, and price has quickly arrived at a key support area that we identified. This is a likely place from which a positive reaction can occur, and in the process avoid/postpone further bearish implications.

• WEEKLY CHART – CONTINUATION: The recovery off 76.4% support, from late last year, recently reached the 61.8% retracement on the continuation chart. Clear resistance has been seen, with obvious support from the prior 123.40 Jan high failing to halt the bears.
• WEEKLY CHART – SEP-09: The Weekly chart of the front month shows failure near the lower 50% level, and almost exactly at the old 144.75 May-08 low.
• DAILY CHART – SEP-09: In the Commodity Trading Guide we had initially thought that the 129.00 area could support, but we had noted the lower 121.00/120.00 area as key support too. Ideally the channel base projection will hold, otherwise medium term bull momentum is called into question. Bulls would want any overshoot to be contained by the 117.45 76.4% pullback. Speculative buyers in the 121.00s (or 120.00s) have a limited risk level in that 117.45, so stops perhaps just below 117.00. Partial profits would be sought in the 135.00-138.00 area (probably towards the lower end), stops then rising to cost. A break below that 76.4% level would increase medium term bear risk once more.

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

Is Short Sterling topping out?

The Technical Trader’s view:

WEEKLY CHART There is a tension within the market: the possible completion of a Bear Triple Top (due to a breakdown through 97.54/5)

versus

the support from the prior Highs at 97.4550/97.3550 which has yet to break. On balance though, because of the longevity of the sideways consolidation - 6 months - we feel the bears are likely to prevail.

Look closer at the detail.

DAILY CHART

This emboldens the bears – in this chart the completion of the Triple Top is much more emphatic :note that the substance of the price action is some way above the 97.54/5 lows.). Note too, that the good volume days are all bear days. (Of course, the falling Open Interest suggests closing of longs not new shorts)

If the Top is complete, then the measured move down will be substantial – at least as far as 96.70…..

And good resistance on any rallies will be found at 97.54/5

The Macro Trader’s view:

With the Bank of England recently holding official interest rates at 0.50% and confirming its commitment to quantum easing, as policy makers continue to talk about a weak economy, one could be forgiven for wondering what on earth is going on in Short Sterling; why over the last few days has it sold off so hard?

Over recent weeks, a tentative stream of slowly improving data has become stronger. Where until only a few weeks ago traders were talking of data showing the pace of economic contraction was slowing, now data is encouraging traders to talk of outright recovery.

Over recent weeks the UK economy has produced unmistakable signs of recovery:- Both recent PMI surveys have come in stronger than expected, with the Services survey moving convincingly above the key 50.0 level,

- The Nationwide and HBOS house price surveys have both recorded rising house prices on a month on month basis,

- The council of mortgage lenders have reported a strong increase in mortgage approvals, and

- NIESR, have reported an Improvement in their estimates of GDP with the latest 3month on 3month report coming in at -0.9% and more importantly the May report stood at +0.1% after April’s +0.2%.

While the NIESR estimates are just that, they do have a good track record of correlating with official data, which means there is every possibility that Q2 GDP could mark the end of the recession.

Accordingly traders are already building into Short Sterling early expectations of tighter policy, and although the MPC may not tighten until late in the year, the markets anticipate the moves of policy makers rather than follow them.

With the UK economy having received a huge injection from both fiscal and monetary policy, the Bank of England will not have the luxury of time when it comes to beginning a tightening cycle. The current government is so unpopular they are unlikely to take any meaningful steps ahead of a General election in June 2010 to rebalance fiscal policy and reduce the unprecedented peace time deficit.

Moreover, the Bank of England will not easily remove the quantum easing it has adopted to ward off earlier threats of deflation. This leaves interest rates. They are both effective and easy to change, and we believe that the MPC will need to tighten policy aggressively starting later this year in an effort to:

- Protect against inflation as the economy grows,- Counter a fiscal stimulus that will no longer be needed, but which the Government will be reluctant to remove, and

- Counter its own quantum easing policy that will take time to unravel.

So what is going on in Short Sterling? The Bull market is over and traders are now pricing in what will likely prove a sharp bear market driven by the Bank of England later this year.

Mark Sturdy,John Lewis,
Seven Days Ahead

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

SILVER Setback – Temporary Tarnish

The Commodity Trader’s view - A recent Key Reversal Day, ahead of key resistance. This could be enough to justify a shorter term bear stance in Silver, notwithstanding the latest rebound. And the reward/risk ratio looks sufficiently large too…

• MONTHLY CHART – CONTINUATION: The long term chart shows how effective support was from a major 76.4% level (and highs from 2004/2005 too). On this chart note that an old rising support/return line plus the May-08 low around 16.00 have recently provided effective shorter term resistance. A further pause in the medium term recovery would not be a surprise.
• WEEKLY CHART – JUL-09: In the Commodity Trading Guide we had identified the 16.33-78 area (May-08 low, Fibo projection & 61.8% retracement) as potentially tough overhead resistance. S/term the market has found a high just ahead of this - see below…
• DAILY CHART – JUL-09: Wed 03-Jun saw a Key Reversal Day (just ahead of key resistance), heralding a pause/pullback phase. Unsurprisingly initial support has been found at/above the 14.64/54/50 area (Feb high and dual Fibo retracement area). But, in view of the failure near to key resistance, there is a good chance of seeing a further bear onslaught. If so, then a break of 14.64/50 would turn focus on the lower 13.48/40, the next dual Fibo retracement area. In any case, ultimately, bulls do not want to see the channel base projection, around 12.60 currently (and closing in on the 76.4% 12.83 level), broken.
• This suggests a later buy strategy towards 13.50, with stops below 12.80. But ahead of this, s/term sellers on rallies (spurred by that Key Reversal Day) have a clear risk level in the 16.25 03-Jun high (so stops above this). Favoured entry area would be 15.65/90, the s/term 61.8%/76.4% rebound area, but ideally towards the higher end as one Fibo projection implies that the 16.00 area might be seen prior to resumption of weakness under this temporary bear scenario. This would minimize risk. Partial profits may be taken at 14.70/60, balances targeting 13.60/50 with tightened stop to at least cost. This particular s/term bear view is negated if the 16.25 high is exceeded.

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

US Dollar Index Embarking on Voyage of Recovery…

The FX Trader’s view - …at the least over the shorter term. Last week the US Dollar Index started to rebound from technical support, aided by an interesting ‘Fibonacci’ projection which we detail below. Our bullish view here underpins our thinking across a range of markets that we cover in the FX Trading Guide, where we have adopted some early, somewhat aggressive reverse stances.

• MONTHLY CHART: The main sign in 2008 that long term bears were losing momentum was the breach of the bear channel top projection. Subsequent resistance was found from the 38.2% recovery level. Recent weakness has now found support close to the 61.8% pullback level (77.93) and Dec-08 low (77.688).
• DAILY CHART: Note how close the 86.960 76.4% level comes to the 86.871 20-Apr high –we believe this is no accident (although it doesn’t always happen, and pinpoint accuracy is rare) and illustrates the underlying natural, ‘Fibonacci’ forces at work. It implied a downside projection at 77.96, just below last week’s low. This technique recently worked well in a few other markets such as EUR/USD and USD/JPY, as discussed in the Guide. Here, note that the bear channel base projection has provided effective support, and Wed 03-Jun was a virtual Key Reversal Day.
• All of this makes a recovery phase likely. Already the 23.6% bounce level at 81.000 has been eroded, and the next target/resistance now lies at 82.631/82.647, 19-Mar low and 38.2%. It should be a struggle to push through this initially. Also keep in mind the channel top at 83.75 and falling. We can’t yet judge how long-lasting a dollar recovery will be but, for now, we view s/term weakness as corrective/temporary ahead of further bull action.
• Note: Last week’s bullish Update on USD/SGD remains sound, with the partial profits target of 1.4600 quickly reached.

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

Do T Notes remain a sell?

Last week we compared bonds and thought that T Notes were a good sell. They have fallen further - are they still a good sell? Some doubts have arisen…

The Technical Trader’s view:

WEEKLY CONTINUATION BAR CHART

The market pull back from the long term 123-19 high, and the collapse back through the prior highs 120-01 and 119.11.5 set the bears running last week. But, in the continuation chart, the rollover into the September contract has exaggerated the fall and brought the market to the rising diagonal support at 115-16.
It looks extended. And vulnerable to a rally back.

DAILY SEP 09 CHART

This is less exciting than either the weekly continuation chart or the Jun 09 day chart. Because there is a less clear Double Top - if one at all. And though’ there is a small Head and Shoulders continuation pattern in place, the move from that pattern has come up against the substantial support from the Prior High at 115-15. And of course that coincides with the support from the rising diagonal in the weekly continuation chart.

We would not be big sellers until both supports at 115-15 were broken. Wait for a clear confirmed breakdown from here before adding to shorts.

The Macro Trader’s view:

The Macro Trader’s Guide has long talked of the emergence of a bear market in bonds, driven by spiraling budget deficits in the advanced economies and fears of a renewed burst of inflation once growth gains traction.

While the US, UK, Euro zone and other governments were right to stimulate their economies through fiscal measures when an economic collapse and deflation seemed heavily on the cards, that same emergency stimulus needs to be removed as soon as it is clear recession has passed and growth is gaining traction.

It is, indeed, a matter of urgency that governments prepare for recovery and normalize their fiscal stance, because at the same time fiscal medicine was administered, monetary medicine was being applied in large doses.

The real risk is that Central Banks will be too late in tightening policy. They are in the front line for two reasons:

- Quantum easing has meant the creation of new central bank money,
- Fiscal easing has pumped billions into the economy.

While tightening monetary policy is a quick tool to deploy, quantum easing will be slow to unwind. But that only addresses the concern over inflation. Ultimately, the fiscal stance needs to be brought back onto a sustainable path too. Markets that have accepted the need for emergency measures during the financial crisis will not tolerate slack fiscal policies once recovery is clearly under way.

The demand governments are placing on bond markets, if not addressed, will result in higher bond yields and in some cases, the authorities may fail to cover their funding needs. This happened to Germany and the UK earlier this year and has happened to Latvia this week. The Latvian situation caused a plan to be hatched in the EU for the Union itself and other large economies such as Germany to agree a facility to cover the funding needs of countries like Latvia and others in distress, such as Ireland, Portugal and Greece - if they are unable to fund their own government deficits.

In the US, Ben Bernanke warned Congress yesterday that the US cannot and must not, for competitive reasons as well as funding concerns, go on running large federal deficits for long periods once recession is over.

In short, as the leading economies show signs of emerging from the worst of the recession and, in some cases, show early signs of growth, policy makers on both sides of the Atlantic, including the German Chancellor, are calling for a re-think on the current fiscal policy stance.

We judge it will take time to correct and reverse the fiscal measures taken. And even when policy is changed, the impact will take time to filter through. In the interim, markets will get nervous and investors will demand higher bond yields to encourage them to buy the large tranches of debt on offer, and to cover the increased risk of an outbreak of inflation.

The next few months could prove difficult for bond markets and we sense yields will rise sharply from here.

Mark Sturdy, John Lewis
Seven Days Ahead

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

USD/SGD Key Reversal Day Heralds Rebound

The FX Trader’s view - The Daily charts of the markets we follow in the FX TRADING GUIDE are littered with Key Reversal Days and Almost-Key Reversal Days from earlier this week. We’ll be looking at all of these in next week’s Guide, but here we have chosen USD/SGD as an example – rebound is on the cards.

• MONTHLY CHART: Recovery from the 2008 low eventually neared a 61.8% level before pulling back. We had been uncertain whether the 1.4153 Dec-08 low would be retested and, currently, support could emerge above this, just ahead of the 61.8% retracement – see Daily chart below….
• DAILY CHART: The recent break below the bull channel base projection had kept us bearish – we were looking at a Fibo projection at 1.4235, around the 61.8% level on the longer term chart. However, in this week’s Guide we had noted the positive divergence on the RSI, indicating bull fatigue. Wed’s Key Reversal Day, coupled with how the chart structure looks since 1.4747 18-May high (typical of a final leg), improves the scope for a rebound now. Keep in mind the usual retracement levels as potential resistance – 23.6% at 1.4620 and the 38.2% at 1.4805, with that 1.4747 high also offering a s/term hurdle. This bull scenario would be negated by a move below the 1.4324 03-Jun low.
• Buyers on dips (1.4450-1.4400 area?) have a clear risk level in the 1.4324 low, initially targeting around 1.4600 for partial profits, and then the 1.4745-1.4800 area for more, raising stops to at least cost along the way.

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

Wheat Retreat Keeps Base Incomplete

The Commodity Trader’s view - An initial recovery in Wheat prices last year was subsequently almost completely reversed. Another attempt has reached the area of the previous recovery high, but bulls have lacked the s/term courage to push higher. However, the current pullback may be just the opportunity to jump on board before the next try.

• MONTHLY CHART – CONTINUATION: The collapse in Wheat prices found support from the 76.4% retracement of the 1999-2008 accelerating upmove. This particular Fibo retracement can often be most effective as support/resistance. On this long term chart the interesting overhead level lays around 750.
• DAILY CHART – JUL-09: On this chart the initial Dec/Jan recovery pushed marginally beyond the 23.6% retracement before petering out. The subsequent pullback was deep, but stopped short of the 497.00 Dec low. The move through the 584.50 early Apr high was bullish, as highlighted in our previous Wheat Update of 03rd Apr-09. In the Commodity Trading Guide we thought the next interesting resistance was going to be the bull channel top projection at 690 currently. The pullback just ahead of this is perhaps no surprise – it warned against chasing the market after the brief breach of the 670 07-Jan high. We currently assume this is corrective/temporary prior to another bull attempt. Ideally support will come at/above that 584.50 high, else note lower support around 550 which corresponds with a 76.4% pullback level. A later break above the channel top would confirm that a medium term base was in place, and open up the 38.2% 744 level as the next target.
• Buyers on dips towards 584.50 will probably have initial stops below 550, targeting towards 690 for partial profits, and then the 740 area for more, tightening stops at least to cost along the way.
• Note that last week’s Update on Cocoa pointed out a triangle formation, with a s/term bull signal given within this. There has now been an initial bull break from this pattern – ideally any pullback will find support above the 2519 08/11-May high now, and should be a useful reference point for buyers on dips.

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