Don't Miss the Commodity Train of Opportunity

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Don't Miss the Commodity Train of Opportunity
An example of how EWI's Daily Futures Junctures service used objective Elliott analysis to anticipate a meaningful turn down in cocoa

By Nico Isaac
Tue, 17 Jul 2012 16:30:00 ET

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"Fundamental" analysis of the financial markets looks to events outside a market -- supply, demand, political events, weather patterns, and the like -- to forecast price trends. The problem with this news-leads-price moves approach is that you often end up arriving at the train station of opportunity only to watch the railway leaving the platform without you.

With Elliott wave analysis, however, objective indicators -- such as wave structure, Fibonacci price targets, plus supporting technical evidence like daily sentiment and technical momentum signals -- call all the shots. The result is a much clearer picture of potential near- and long-term trading opportunities BEFORE they arrive in the "depot."

Let's take the recent action in cocoa, for example. On July 12, cocoa prices plunged 4.5% for the market's biggest single-day percentage drop in nearly 6 months. According to the mainstream experts, one main fundamental took the might out of cocoa's bullish bite: An 18% decline in Europe's 2nd-quarter cocoa-grindings data, which measures the amount of processed cocoa. Here, a July 12 Wall Street Journal wrote:

"Cocoa Prices Tumble 4.5% as a widely watched industry indicator signaled that Europe's appetite for chocolate has declined dramatically."

Now let's look at the other side of the track -- at the July 5 Daily Futures Junctures. In that issue, which came out 7 days prior to the grindings report and the drop in cocoa -- we labeled a clear Elliott wave zigzag pattern in the 240-minute chart of cocoa below.

For newbies, a zigzag is a simple 3-wave pattern labeled A-B-C that contains these key characteristics:

· A 5-3-5 subwave sequence

· The top of wave B is noticeably lower than the start of wave A

· The end of wave C usually ends well beyond the end of wave A

Zigzags are corrective patterns -- meaning that, after they end, the previous trend resumes. Because on July 5 the zigzag was nearing its end, the July 5 Daily Futures Junctures outlined this bearish case for cocoa's coming trend:

"From a little if any above the 2375-2419 area and doing so with resistance left intact, [we'll] look for September cocoa to fall..."

The next chart brings the cocoa market forward in time to July 12 AND shows you how the market did, in fact, make its bullish departure right on schedule.

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Tags: cocoa futures, cocoa futures, commodities, Elliott wave, fundamental analysis, Jeffrey Kennedy

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