Cocoa Set for 2-Month Low on Support Breach: Technical Analysis

(Businessweek) – Cocoa futures traded in New York are set to fall to the lowest level in almost two months after a support level was breached, according to technical analysis by London-based futures and options broker Sucden Financial Ltd.

The beans for September delivery will probably slide to $2,140 a metric ton on ICE Futures U.S. within the next 10 days after prices fell below $2,200 a ton yesterday, according to Sucden senior analyst Myrto Sokou. Prices may then extend the slide to $2,126, she said. That would be the lowest for a second-month contract since April 4, data on Bloomberg showed.

“The market has been in a free-fall since May 3,” Sokou said by phone from London yesterday. “If the downside momentum continues to weigh on the market sentiment, it seems that the next downside target would be $2,140 a ton and then $2,126 a ton. It’s been a sharp decline in the cocoa market.”

Cocoa has fallen 6.6 percent so far this month, based on the second-month contract, as rainfall in West Africa, the world’s main growing region, is improving the outlook for the 2013-14 crop that starts in October. Rain will fall in the region this week after totaling 0.5 inch to 3.5 inches last week, MDA Weather Services, in Gaithersburg, Maryland, said in a report e-mailed on May 28.

“If the market continues to be oversold like it is at the moment, it seems that there may also be an opportunity for some buying, with a short-term correction higher to retest $2,250 a ton to $2,303 a ton levels,” Sokou said.

In technical analysis, investors and analysts study charts of trading patterns and prices to predict changes in a security, commodity, currency or index.