Cocoa Trapped In Neutral Range

(The Wall Street Journal) – ICE July cocoa futures punched higher Wednesday, but remains trapped within its recent price range. The near term technical trend is neutral within a well-defined range top and bottom.

ICE July cocoa recently traded up $35 at $2,986 per metric ton.

The ICE cocoa market has been languishing in a choppy, sideways trade for weeks now. From the middle of March, a strong support floor and range bottom has developed in the $2,925-$2,922 area. On the upside, strong range top resistance is seen at the $3,047-$3,036 zone.

The market has been oscillating higher and lower within that range since mid-March. The most recent swing low stalled at $2,936 on April 28. The market approached but didn’t test the range bottom. Buying interest emerged ahead of the range bottom and has propelled the July contract back to the mid portion of the range. The bulls may be emboldened to push for a modest rally back toward the range top near term.

Taking a look at the larger, longer-term trend, the primary pattern remains bullish. The weekly July cocoa chart reveals a steady and strong bull trend from the July 2013 low. The recent sideways action can be viewed as a consolidation or pause within that larger bull trend.

However, if a strong and sustained sell-off were seen under the range bottom around $2,922 that would be a bearish chart signal and would open the door to a downside correction. Conversely, if the market is able to achieve a strong and sustained upside breakout above $3,047 it would signify that the longer-term bull trend was resuming its course, and higher price levels could be targeted.

The cocoa market will break out of this range at some point and those are the key levels to monitor. The longer a market coils sideways, the longer and stronger the breakout generally is once it occurs.