This time last month, cocoa prices were sweeter than a Hershey bar dipped in honey. To wit: In mid October, the market was orbiting its highest level in 30 years.
And, according to the mainstream financial experts, a perfect bullish fundamental storm was set to blow the roof off of cocoa's upside limits. Below are the most supportive factors cited by the usual sources at the time:
- A higher-than-expected rise in third-quarter profits at both The Hershey Company and Cadbury PLC: "Bullish news from the financial sector and chocolate companies," began an October 23 Wall Street Journal, "Is sound proof that losses in world cocoa demand are thought to be bottoming out."
- A continued rise in crude oil to new 2009 highs, alongside a weaker U.S. dollar.
- Gains in the U.S. stock market "are viewed as a sign of a coming turnaround in the economy and... [Thus] more willingness to buy chocolate." (Wall Street Journal)
- Ongoing unrest in the Ivory Coast, the world's largest producer of cocoa; And, a labor strike by the region's largest cocoa workers union.
- A global cocoa deficit of 56,000 tons, further exacerbated by a 14% decline in harvest for the Ivory Coast.
Add them up and the end result seemed to be a continued rise in cocoa prices. Here, one popular news source wrote:
"These multi-decade highs in prices have been caused by constraints in the supply side. However, it is the demand sign of the equation that provides compelling evidence that prices are trending upwards." (AP)
YET -- from its October 23 peak, cocoa turned DOWN in a powerful sell-off to the one-month lows we see today.
As for seeing the reversal in cocoa's winning streak BEFORE it arrived -- the October 16 Daily Futures Junctures Weekly Wrap-up presented two labeled close-ups of cocoa that showed the market's uptrend coming to a near-term end. Below is a reprint of the first of those charts, minus several of the original Elliott wave labels:
Here, Daily Futures Junctures editor Jeffrey Kennedy utilized the Elliott wave guideline of "Equality" to determine a potential upside objective for the mature uptrend. This guideline states that Wave C will often equal Wave A in time and distance. In the case of cocoa, that area (3247 or 3420) would galvanize a reversal and turn prices down. And, that's exactly what happened.