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When Exchange-Traded Investments Recover

Some publicly traded commodities are making a comeback, though. Cocoa had lost nearly 44% in value in a two-year bearish period (April 2011-March 2013). Since then, the tide has changed considerably. Not only has iPath Pure Cocoa (CHOC) moved 30% higher off of its 2013 lows, but the current price is roughly 10% above its 200-day moving average.

So how might an investor judge whether a new long-term uptrend is for real? Might the price movement be yet another head fake in a viciously deceptive deflationary cycle?

Perhaps.

Still, if one combines technical price movement with fundamental data, he/she can make an educated decision about an investment's potential. According to the European Cocoa Association, European chocolate makers increased their processing of cocoa by 6.2% in the final three months of 2013. That data point far exceeded expectations. With traders responding favorably to the data on the chocolate-making ingredient, CHOC may very well make a powerful run at earlier highs set back in 2011.

Even when fundamental data and technical price movement support the notion that an asset type has upside potential, I recommend the use of stop-limit loss orders and/or low-correlating assets. "Stops" can minimize the possibility of large losses while low-correlating assets can reduce portfolio volatility.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

Certified Financial Planner Gary A. Gordon, MS, is the president of Pacific Park Financial, an SEC-registered investment adviser in California. He has more than 23 years of experience as a personal coach in ¿money matters,¿ including risk assessment, small-business development and portfolio management, and has taught finance in Mexico, Singapore, Hong Kong, Taiwan and the U.S. He wrote the draft copy for ¿Maverick Investing,¿ a McGraw-Hill publication, and writes commentary for Seeking Alpha in addition to ETF Expert, for which he also hosts the ETF Expert Radio Podcast.
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