After climbing over 30% this summer, cocoa prices have started to correct. In the last 2 weeks prices have lost 6.5% fast approaching the up sloping trend line that has serve as support since late June. I am recommending bearish exposure and have advised traders to use the Fibonacci levels as exit targets. Ultimately, in the coming weeks, I’m expecting the December futures to trade back near the 100 & 200 day MAs which would represent a loss of approximately 7%.
Over the years I’ve noticed a strong inverse relationship to the US dollar so if the greenback can catch a bid albeit just a bounce this would likely help the cause. Support in December is eyed at 79.00 and a 38.2% Fibonacci retracement would lift prices in this contract back over 81.00 near its 20 day MA.
This could be played by bearish ratio spreads, outright puts or my favorite play, shorting futures while simultaneously selling out-of-the-money puts.
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