Cocoa

 

There's a potential selling opportunity developing in the July 05 Cocoa futures.  The recent uptrend off the 3/30/15 low has produced three measured move patterns.  The dominant pattern is the double bottom and has 3:6 left handed skewing.  The 1st supporting pattern has medium deep retracement with 3:4 left handed skewing.  The 2nd supporting pattern has neutral retracement with 0:6 left handed skewing.   The fact that none of the 3 patterns have retracements that are shallow plus all have left handed skewing points to a potentially good shorting opportunity.  Each pattern also projects 3 key Fib levels for possible targets.  Individually, they don't carry as much weight, but together they can provide clusters of strong upside resistance. The key is to look for other clues to help pick the right cluster. 

 

Some other clues I see:

-we are trading around the 78.60 retracement between the Sept 2014 high and the Feb 2015 low.  This retracement level is often important by itself and very important when combined with other factors

-we are overbought on the RSI and approaching a bearish crossover on the MACD

-we are trading around the Monthly R2 level @ 3140, which can signal the move being overextended

 

Resistance Cluster Averages:

#1: ~ 3127

#2: ~ 3196

#3: ~ 3263

 

We are currently in the first cluster average range and should establish a small short position.  Stops would intitially be placed above the 3301 high from last September.  The next cluster average is 3196.  Look to add to short position at that level.  We can also look for more clues to add to our short position as this pattern continues to unfold.  Some things to look for include: candlestick patterns and western patterns.

 

One last thing to note is that the most recent surge off the 5/1/15 low has been very bullish.  Because we've entered the current resistance zone this way, it could take a few days to a week before we sell off.  It should need time to shake off the bullish energy it has the past 2 weeks.  The market should give us some indication before it looks to roll over.