CTS Spotlight for the week of December 10th, 2010

Hello and welcome back to CRI's CTS Spotlight

12/10/10: The US dollar continues to consolidate its recent gains. Because of this, we appear to be stuck in a bit of a holding pattern within many commodity markets. Is the US dollar bottom for real? It's too early to tell but I'll have to admit, from Coffee to Aussie dollars to Swiss Francs, there are quite a few markets setting up for a trade - you can literally see it coming. Having said that, the market does have a lot of steam behind it so I won't be looking for a breakdown until at least the new year. In this week's CTS Spotlight we shall look at one of the few markets not to rally in 2010, Cocoa, and how that may be about to change.

Cocoa:

With all the news in commodity land of late, one is always hoping to grab the next big move. The recent bullish action in Cocoa prices, coupled with political turmoil in The Ivory Coast (where almost 80% of all cocoa supplies come from) had me thinking that a big move might be coming. Then we look at the charts and we come back down to earth.

While Cocoa prices have done virtually nothing for 2010 (which is one reason I thought we might have a long trade here), price have moved steadily higher over the past decade. Indeed, so much so that when one looks at the monthly price chart (on right above) one can clearly see that even the most aggressive price targets have all been hit. We can also see that 'real' support for Cocoa prices actually sits near the 20 area not the current 30 area. Supporting this argument, a very simple 50% retracment of the 2000's bull market would bring prices back into the 21 area [(8+35)/2 = 21.5].

From a shorter time frame (weekly on left above) we see that Cocoa prices are actually working a very clear bearish flag pole formation. The formation has taken almost a year and a half to play out. It was confirmed when prices broke through last January's lows (just under 28) in July. Because of this, one ought to be reluctant to get too bullish until this pattern has played itself out. The target here is near 24 which would coincidentally bring prices back to the 5 year Monthly trend line.

So, while I would love to report CRI had found another great market to get into, this just isn't the case. I will be watching Cocoa as it nears the 24 to 25 area as we may get a trade-able bottom at that point. But for now, a big nothing....

That's all for this issue of the CTS Spotlight,
Brian Beamish FCSI
the_rational_investor@yahoo.com
http://www.the-rational-investor.com 

p.s. Swiss Franc has rallied into topping zone mentioned a few weeks ago in CTS Spotlight. CRI will be looking closely at the June puts and may issue a CRI OnlyDoubles NewTrade Alert...