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Commodity Investors: The Line Between Opportunity & Regret

Cocoa’s six-month long selloff is what happens when prices cross critical trendlines

by Nico Isaac
Updated: February 16, 2017

Sometimes in life, the theoretical line between stay and go is hard to define.

And other times, it's alarmingly clear. Say, for example, you're on a first date with a very attractive woman, enjoying great conversation, delicious food, and then -- after dinner, she invites you back to her place to meet the newest member of her family...

... of hairless cats.

Imagine charting said date. Point "H" (for hairless) would be the line where the rising uptrend turned down and plunged headlong into a gaping abyss.

Now consider this: A similarly bold line on the price charts of finanical markets that, if crossed, often signal a change in trend of great significance.

The line I'm talking about is the trendline.

Trendlines are exactly what they sound like -- lines that identify the dominant price trend of a particular market. Simply put, they connect two points, usually price highs or price lows. And, as our chief commodities analyst Jeffrey Kennedy explains,

"Trendlines are one of the simplest and most effective tools a trader or analyst can employ."

In order to see why, here is a recent, real-world example of a major market reversal forecast by Jeffrey Kennedy with the help of trendlines.

In our July 2016 Monthly Commodity Junctures, he identified several bearish developments on cocoa’s long-term price charts, all of which confirmed the market’s larger trend had changed from up to down (bold added):

“If we look at the weekly prices chart, notice… we’ve seen a decisive break of a trendline – the lower boundary line of the corrective price channel. And then we’ve seen prices test the underside of that trendline. This is referred to as a pullback, and it occurs in a down trending market… This is one of the reasons I wanted to discuss this market specifically in this month’s Monthly Commodity Junctures’ video newsletter.

“What this does is confirm the counter-trend price action that’s basically been in force since January of this year is finally complete and we can now anticipate this larger wave three sell-off targeting at least 2194.

What happened next can best be described as one of the swiftest and strongest crashes in cocoa’s recent history, as prices reversed from a multi-year high in July to a four-year low in early February:

Now, the February 13 Daily Commodity Junctures examines the near-term Elliott wave patterns underway in cocoa to determine whether the six-month long sell-off is getting long in the (sweet) tooth – and where the next potential price-pivoting target is. 

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