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360-289-9441(March 26, 2000) COCOA: May cocoa dropped $36 at $840 on Friday after dipping to a three-week low. London was weak; speculators liquidated and supplies remained large and on-hand after the main-crop harvests are completed in Africa's Ivory Coast. A few stops were hit on the way down; small speculators liquidated and commercials covered (buying). This has been the typical session behavior the last several months. Last week's rally failed miserably, said one trader. Prices are off the contract lows only because harvest selling pressure has ended, but "the market has not been able to go anywhere," said one trader, "because there's too darn much cocoa available." Isolated showers; slower "arrivals" and the possibility of a renewal of IMF funding were the fundamentals at work Friday. The latter should be bullish as the committee develops a reform program. There is gradual improvement in Ivory Coast stability despite renewed claims of election fraud. World consumption of cocoa and its products must increase for this market to move higher. On April 28th, the U.S. grind will be released and this holds out some hope for "longs." May's open interest is still over 32,000 lots.
May cocoa, like sugar is a rally waiting to happen. Quite a few small speculators got aboard earlier this month, but the train hasn't quite left the station yet. Prices have barely moved from the 750 low through 800. There was an attempt a breakthrough last Monday at 891, but the week closed at 840, well below the 18-day moving average with bearish stochastics in all time frames. Momentum and direction in the short term are also bearish. With a high of 866 Friday and an obvious bail-out by traders and small specs that could have also have been a cycle down signal of very modest proportions on Friday. Monday will reveal whether that momentum "south" will continue. While 9- and 18-day moving averages are still bullish, stochastics show wide divergence and strong downward momentum. Do you see a head and shoulders pattern forming. Neutral.
Martin B. Miller
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