From the Desk of Ian Culley @IanCulley
Buying opportunities abound across commodities.
It’s easy to miss this phenomenon if you’re solely focused on the major indexes, as the CRB Index and the Bloomberg Commodity Index $BCOM broke down earlier this month.
Don’t let those charts mislead you. Plenty of sweet setups present themselves.
And the next chart is by far my favorite…
Check out the five-year base in cocoa futures:
Cocoa is taking the shape of a potential ascending triangle. This pattern carries a bullish bias as buyers step in, creating a series of higher lows.
Momentum is another bullish data point on the chart. Notice the 14-week RSI has held within a bullish regime since the initial thrust higher in early 2018.
Cocoa futures provide a textbook example of an accumulation phase.
The 2020 high at 2935 marks the breakout level on the weekly chart. It also coincides with the former 2018 highs, so there’s plenty of price memory at this level.
I anticipate a sloppy breakout, given the big multi-year level. Nevertheless, I like buying strength on a decisive close above the 2020 high.
Also, I want to give this trade some wiggle room – let it dance.
Instead of using 2935 as my line in the sand, I’ll place my stop below yesterday’s pivot low at approximately 2825.
This level also marks the 2022 high and the pivot high from earlier in the month. Check out the daily chart:
I even consider it a breakout level for the recent year-long base.
Either way, cocoa is a no-touch below those former 2022 highs. On the other hand, as long as it’s above that level, I’m targeting 3,240 (a key extension level and the 2016 highs).
To be clear, cocoa futures must close above 2,935 before entering a long position. I don’t want to have anything to do with this trade until then.
Major commodity indexes fail to capture the pockets of strength beneath the surface. May sugar is printing fresh contract highs. Cattle futures continue to march onward and upward. And grain markets remain resilient, heading into a seasonally bullish period.
Don’t be fooled! Instead, keep commodities on your radar. And prepare for a sweet breakout in cocoa futures.
COT Heatmap Highlights
- Commercial hedgers lightened their long position for the Canadian dollar yet hold near three-year extremes.
- Commercials added another 5,000 contracts to their long position in soybean oil, remaining at aggressively bullish levels.
- And commercials hit their largest net-long position for lean hogs in three years.
Click here to download the All Star Charts COT Heatmap.