Technical Analysis #C-COCOA : 2016-12-02

Dmitry Lukashov IFC Markets

Improved Cote d'Ivoire cocoa crop forecast bearish for cocoa prices

The International Cocoa Organization upgraded 2015-16 cocoa harvest estimates for Cote d'Ivoire, Peru and Indonesia. It also forecasts improved Cote d'Ivoire output in current 2016-17 harvest. Will cocoa prices continue falling?

The International Cocoa Organization reported that the drop in cocoa deliveries in Cote d'Ivoire in current 2016-17 crop harvest is mainly due to low carryover bean stocks and farmers are optimistic cocoa output will recover with current favorable weather conditions. As of November 20, deliveries to Cote d'Ivoire ports so far this season were down 16% year on year at 387000 tonnes. The low deliveries so far resulted mainly from smaller delivery of carryover stock from previous season marked by a shortage of beans. With favorable weather conditions 2016-17 coca output is expected to rise. ICCO also cut by 62000 tonnes to 150000 tonnes its estimate for the world cocoa production deficit last season partly as a result of an upgrade in Cote d'Ivoire, Peruvian and Indonesian crops. Higher crop estimates are bearish for cocoa price.

On the daily timeframe the COCOA: D1 has been falling after hitting year to day high in early May.

The Parabolic indicator gives a sell signal.
The Donchian channel is tilting lower, signaling start of downtrend.
The MACD indicator gives a bullish signal.
The Stochastic oscillator is edging up heaving not breached into oversold zone.

We expect the bearish momentum will continue after the price breaches below the lower Donchian bound at 2354.00, confirmed also by the fractal low. This level can be used as an entry point for a pending order to sell. The stop loss can be placed above the fractal high at 2451.00. After placing the pending order, the stop loss is to be moved to the next fractal high, following Parabolic signals. By doing so, we are changing the probable profit/loss ratio to the breakeven point. If the price meets the stop loss level (2451.00) without reaching the order (2354.00), we recommend canceling the position: the market sustains internal changes which were not taken into account.

Technical Analysis Summary

Position	Sell
Sell stop	Below 2354.00
Stop loss	Above 2451.00

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Author

Dmitry Lukashov

IFC Markets

Dimtry Lukashov is the senior analyst of IFC Markets. He started his professional career in the financial market as a trader interested in stocks and obligations.

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