Rains covered West African state of Côte d'Ivoire and cocoa crops may benefit from it. Côte d'Ivoire accounts for 35% of cocoa and another 24% are produced in the neighbouring Ghana. Will the improved weather conditions push cocoa prices down?
Cocoa prices advanced almost 14% since early February on dry weather. At the same time, the volume of cocoa shippings from Côte d'Ivoire fell only 0.7% to 1,226mln tonnes since October 1, 2015 to March 20, 2016, compared to season 2014/15. Another factor that may support the cocoa downtrend is the COCOBOD decision to allocate the additional 10.2mln nursery transplants of cocoa to the local farmers. Last year they received 50mln plants. Ghana is aiming at becoming the second to none among cocoa producers. Another African state, Cameroon, is planning to double cocoa production to 2020 compared to the current 230 thousand tonnes a year.
On the daily chart Cocoa: D1 is in uptrend and has come close to its lower boundary. The prices have been growing from the year low reached in early February and have reached the 200-day moving average line but failed to surpass it so far. The MACD and Parabolic indicators give signals to buy. The RSI is descending from the level of 70 and has formed negative divergence. The Bollinger bands have widened a lot which means higher volatility. The bearish momentum may develop in case the cocoa prices fall below the last fractal low, the Parabolic signal, 1st Fibonacci retracement and support line of the uptrend at 3013. This level may serve the point of entry. The initial risk-limit may be placed below the last fractal high and the 200-day moving average at 3141. Having opened the pending order we shall move the stop to the next fractal high following the Parabolic and Bollinger signals. Thus, we are changing the probable profit/loss ratio to the breakeven point. The most risk-averse traders may switch to the 4-hour chart after the trade and place there a stop-loss moving it in the direction of the trade. If the price meets the stop-loss level at 3141 without reaching the order at 3013, we recommend cancelling the position: the market sustains internal changes which were not taken into account.
|Sell stop||below 3013|
|Stop loss||above 3141|