COCOA....NOTS?

May 29, 2020

COCOANOTS?

Be advised that all my comments are my OPINION and that OPINION is based on my long term in- house model that I dubbed LAWG 647. The prices I use in my model are week ending prices, usually Friday. BTW, trading commodities is risky and not meant for those that faint at the sight of blood.

If you have read my other articles this week (5/26, 5/28) you know I have been examining commodities that are in a position for a long term trend changes. Today I will finish the week discussing Cocoa and the likelihood of Cocoa going from bearish to bullish.

There is nothing really new in the fundamentals that impact the Cocoa market. There remains concern over demand destruction as there are a number of nations not yet in re-opening mode. How long can one beat that horse? Port activity of major exporting countries continues to lag, as it has. Then there are the daily machinations of world equity and currency markets. But what does the Model tell us?

The Model tells us that July Cocoa has been a long term bearish market since January 10. We know that Cocoa closed Friday, May 22 at 2394, and it will take a close on Friday, May 29 at or above 2364 to reverse the trend. Both the Positive and Negative indicators are within the first standard deviation long term average indicating that Cocoa is not close to being overbought or oversold.

What to do?

The market is making it interesting as July Cocoa over the previous three trading days has been both above and below the trend turning value of 2364. As I write this July Cocoa is trading at 2430. I need to emphasize if Cocoa fails to go bullish today the prices needed to reverse the trend over the following several weeks will make it more difficult.

What to do?

There is nothing wrong with waiting for the actual trend turning confirmation this afternoon. If one wants try and front run the actual signal and get in early one may want to buy at 2350.

My name is Lee Gaus and if you would like to see more of our thoughts go to our website ifgfutures.com. There you will also find articles written by my partners Tom Fritz, Steve Erdman. If you have any questions you can reach me at 1-877-304-1369, 312-384-1166, or email me atlleegaus@efggrp.com. If you have a commodity you would like me examine feel free to drop me a quick e-mail atlee@efggrp.com, I will do my best to accommodate.

There is significant risk involved in trading futures and/or options on futures.