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Cocoa - New York / Cocoa London

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I thought I would mention the trend in Cocoa - New York. I wanted to wait to see if anyone else brought this to the attention of the IG community but I could not wait any longer. Trends can materialise in commodities when one least expects. 

 

The markets premium over London reached its highest since 1977. Reports indicate that it relates to system fund buying and those trading the arbitrage covering their short positions in the US market and liquidating longs in London. 

 

From a fundamental perspective the worlds surplus is disappearing. From a technical perspective the trend is strong from the start of 2018 onwards. These trends can last longer than what one thinks.

 

 

New York Cocoa_20180424_20.38.png

 

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Cocoa New York hit 2909.20. 

 

Cocoa London hit 1939.90.

 

New York Cocoa_20180502_05.25.pngLondon Cocoa_20180502_05.25.png

 

Cocoa is one of the best performing commodities of 2018. From a fundamental perspective there are issues in Ivory Coast which is one of the largest Cocoa producing areas. There is an increase in demand thus leading to a supply and demand scenario. 

 

It is reported that heavy rainfall could damage the April to September crop in Ivory Coast. From my experience this kind of bullish price action in commodities normally stems from either some harsh / adverse weather conditions or the media and expert commodity analyst making bold and bullish predictions / assumptions. I think Cocoa is getting both. 

 

These trends can last longer than one anticipates. However, always have one eye on a possible shorting opportunity should it arise. One must be ready as in Cocoa the price tends to drop over a short period of time where as the price tends to increase over a longer period of time. Therefore one can profit from a shorting opportunity in a short timescale.

 

However, in my opinion right now at the time of writing it is not the time to short as one must not go against the trend. 

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I have been trading commoditis with IG since 1992. The last few years I have concentrated more on stocks but the last 6 months I have started comming back to commodities.

 

Many new traders are put off by futures and the expiry dates.

 

There are many US and UK listed ETFs (ETNs) such as NIB which trackes Cocoa. They are fair from perfect but offer a way to get exposure.

 

As you have stated Cocoa is up 50% so far this year.  My experience in commodities its 2 or 3 markets that become the big winners in one year - then the next year its something else.

 

Sugar is on my radar as a possible long comming back from the dead...

 

SD

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,

 

I used to actively trade commodities back in 2006 - 2013 period using Exchange Traded Notes (ETN's) by ETF Securities. They offered leverage both to the long and short side with some products having x2, x3 and some specific with I think x5 leverage.

 

As trading commodities can be high risk I used these products to help manage my risk. I could not lose more than my capital as there was no margin call to worry about. Also I could using hedging strategies such as going long corn and short wheat or long oil and short natural gas, etc.

 

I agree my experience tells me a similar thing that there are always one or two commodities a year that give excellent returns on the long side. However, there are several that give even better returns on the short side. I don't know if you short commodities but have a look at those commodities that have gone down over the past 12 months and you will see from the charts some excellent opportunities to profit from prices going down.

 

Have a look at platinum on the daily chart and you will see the opportunity to short from the start of the year. The same with Zinc, Lead and Soybean Oil.

 

Sugar in my opinion has been an excellent shorting opportunity. One should not wait to go long on Sugar as an effective trade would have been to short it over the past 12 months. This is maximising your capital and profits allocated to trading commodities. When the trend reverses in Sugar then you can always go long Sugar then. This way you are utilising your capital to the maximum efficiency. 

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Good point forgot to say about shorting and Oil was one of my most profitable shorts ever using an inversex3 ETF.

 

 

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There seems to be the possibility of Cocoa - New York and Cocoa - London potentially breaking out.

2050078389_LondonCocoa_20191112_20_36.thumb.png.a1979b5886877c7dfe78059792aad75a.png

It is about identifying these strong trending assets at the earliest opportunity. Now all one can do is monitor the price action and it may not lead to anything as it may be a false potential but nevertheless it is worth keeping an eye on this one even if nothing materialises. 

1793010848_NewYorkCocoa_20191112_20_37.thumb.png.bf588a32a352280272c92cd26c6a6be8.png

With Christmas around the corner one can only assume that there is an increase in demand for Cocoa. 

The article below will be of interest to some of you. Ivory Coast and Ghana are two of the main players in the Cocoa industry. 

https://ghananewsagency.org/economics/ghana-and-african-development-bank-sign-600-million-cocoa-loan-159565

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Both Cocoa - New York and Cocoa - London are up today. The 'daily' chart is looking bullish and it seems Cocoa has some momentum for now. 

The price on both is trading above its 20, 50, 100 and 200 DMA's on the 'daily'. 

Also volume is showing an increase in line with the recent price gain. 

 1916650344_NewYorkCocoa_20191113_20_48.thumb.png.ff91ae98180cc05afe2ad922a05ed544.png

It seems the 'Awesome Oscillator' is about to turn in London Cocoa's favour. 

1970124513_LondonCocoa_20191113_20_49.thumb.png.483d5f3aeafdf91687d0ddaaa3b72f4a.png

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