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Cocoa Futures: It's What's for Dinner!

The bullish signs for cocoa were clear as far back as June.

by Nico Isaac
Updated: September 14, 2021

The other night, I was invited to a friend's house for an outdoor dinner. She's a star chef at a local five-star restaurant, so I couldn't turn down the offer, and fantasized all day about getting to enjoy one of her famous Spanish risottos or paellas. I brought a rich, Napa vintage of Merlot that was sure to bring out the flavors of whatever gourmet dish she prepared.

When the time came to eat, her two children aged 5 and 7 walked out of the kitchen with serving trays and placed large plates of chocolate chip pancakes with gravy boats of chocolate syrup and tall glasses of chocolate oat milk at everyone's seat.

As it turns out, September 13 was National Kids Take Over the Kitchen Day!

To be honest, it was one of the most delicious meals I've had in a long time. And, it felt timely, considering I had just been reading about the renewed craving for chocolate...

...among commodity investors.

To wit: On September 10, cocoa futures soared to their highest level since mid-2019. And, according to the mainstream experts, the commodity might be breaking out of a multi-year long, sideways holding pattern. Said one August 27 Investing.com article,

"Soft Commodities: Cocoa Could Be Taking the Bullish Baton... Cocoa is showing signs of bullish life."

Could Be?

Don't they mean, has been?

In fact, cocoa prices first took the bullish baton in late June and early July, even though at the time, the popular financial news feed was hyper-focused on the commodity's downside. Here, this July 8 Reuters headline captures the sour sentiment surrounding this sweet soft:

7821cocoaoneyearlowheadline

"London cocoa futures on ICE hit their lowest in nearly a year on Thursday, while New York cocoa slumped to an eight-month trough as the market continues to struggle with excess supplies."

This perspective suggested cocoa prices would continue to struggle -- just before they began to soar.

From another perspective -- namely, an Elliott wave one -- investors were prepared for cocoa's bullish change in trend long before a multi-month price gain confirmed its "signs of life." Here, we turn to the June 7 Daily Commodity Junctures, where editor Jeffrey Kennedy recognized the long, sideways movement in cocoa underway since as far back as 2018 as an Elliott wave triangle.

This pattern, pictured here, is a sideways move labeled A B C D E. Triangles are, in Jeffrey's words, "the market's way of letting you know the party is almost over." Once complete, they are followed by sharp moves that carry prices in the direction of the previous trend – but not for long, hence the "party's almost over" angle:

210914triangle

Jeffery's preferred count considered the triangle complete at wave E; however, he allowed for an equally viable alternate count, one that would put the bullish scenario on hold for the next 1 to 3 weeks." In Jeffrey's words:

"If we fall below 2317, then we need to look at this decline as a five-wave move. That's going to put a hold on bullishness; it's not going to negate it."

6721cocoaDCJalternate

After the triangle's completion, cocoa prices would be launched up, as shows by this arrow:

6721cocoaDCJ

This next chart captures what happened: Cocoa did fall below 2317, continuing lower into late June. There, prices touched bottom and grabbed the bullish baton en route to its highest level in over a year.

91021cocoa

Some surprises in life are good; like, when you get served a plate of hot, chocolate-chip pancakes on a fun, children's' holiday.

But for investors, getting served a price move they didn't see coming is not something to celebrate!

Right now, our complete Commodity Junctures Service gives investors plenty of notice of the most probable long-term trend changes in store for the world's 12+ leading commodity markets.

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