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Cocoa: Keep Your Head On Your Shoulders
EWI's Futures Junctures Service reveals a powerful head-and-shoulders pattern underway in cocoa.

By Nico Isaac
Wed, 01 Feb 2012 16:00:00 ET
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Today, my sweet tooth has gotten the best of me as I sit down with EWI's chief commodity analyst and Futures Junctures Service editor Jeffrey Kennedy to discuss the past year in cocoa.

Nico: This time last year, cocoa prices were orbiting the outer-galactic regions of a three-DECADE high. And -- with Ivory Coast tensions intensifying alongside an increase in demand from China -- all the "fundamental" signs pointed UP.
In the January 2011 Monthly Futures Junctures' "Featured" market segment, however, you foresaw that cocoa prices were actually nearing an important top. The basis of your bearish analysis was this price chart of cocoa, which showed a huge, multi-year ending diagonal triangle Elliott wave pattern nearing its end.
What about that wave pattern suggested to you that cocoa's upside was limited?
Jeffrey: The underlying message of a diagonal is one of trend exhaustion and termination. Moreover, when this pattern finishes, it introduces a sharp and volatile move back to beyond the origin of the pattern -- in this case, down.
Nico: In the January 2011 Monthly Futures Junctures, you presented this detailed forecast: "A three-wave advance in wave 5 (circled) will carry prices beyond the December 2009 peak of 3510. This move will set that stage for a sizable and lengthy bear market in cocoa."
Jeffrey: Yes. That was my original outlook for cocoa. And, as time passed, the market followed both parts of its Elliott wave script to a "t."
  • Part one: Cocoa prices rallied "beyond the December 2009 peak of 3510" to its March high of 3775.
  • And, part two: From there, a "sizable and lengthy" 45% plunge followed -- cocoa's steepest losing streak in FIFTY years.
Nico: What signs are you looking at now to indicate whether cocoa's 2011 free-fall is finally over?
Jeffrey: In the current Monthly Futures Junctures, I experiment with a brand-new video format that happens to feature cocoa in great detail. There, I walk and talk subscribers through a riveting chart of London cocoa that shows a clear "head-and-shoulders" pattern underway. This pattern has stood the test of time for great reason: It enables an analyst to identify clear resistance levels AND project probable targets for the trend at hand.
Nico: Thank you, Jeffrey.
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