(CCZ2:NYBOT) has had a blistering run since breaking out of a
Cooper Rule of Four setup several weeks ago. It remains the most powerful upside momentum market among the major futures contracts.
But as I've described in previous articles, price extensions of the major Fibonacci ratios from previous swing points often present resistance. As the following chart indicates, the 261.8% extension of points A-B occurs at 2029, a level at which cocoa ran into trouble Friday.
In Friday's session, as the 60-minute chart below shows, cocoa fell just 6 ticks short of the 261.8% resistance mark and finished in a weak position near the session's low, just above the gap cocoa left Thursday. Gaps that occur late in a move are suspect because they indicate trend exhaustion.
Still, if cocoa does fill the gap and move lower, it will likely be a countertrend move rather than a trend reversal because this market has done nothing to show a let-up in its momentum. A pullback from here would be healthy and could provide opportunities to find long pattern entries at lower levels. Clusters of support reside at 1959, 1926 and 1906.
On the fundamental front, although not as significant a player as the Ivory Coast in supplying the world's cocoa, Nigeria has reportedly already begun harvesting in some producing areas, a factor that could weigh on this week's market.
Stock index futures accelerated to the downside last week, making them one of the weakest of the major commodity groups. September
futures (NDU2:CME) suffered the most, imploding 6.7% in their biggest weekly tumble since mid-July.
The contract also triggered out of a weekly pullback from a low setup, implying a test of the contract low down at 857.00.
(SPU2:CME) futures also triggered out of weekly pullback setups by trading below the low of the high bar in their pullback-from-low patterns.
A strong finish Friday in debt futures works to solidify the case against establishing long positions in stock index futures. Both December
(TYZ2:CBOT) closed last week at 10-day highs, just shy of contract closing records.
The flight-to-safety buying in debt futures demonstrates the market's fear and re-establishes T-bonds and 10-years as momentum markets.
(FCV2:CME) progressed to a fresh multimonth high Friday. As I've
written before, not all breakouts are created equally. With Labor Day now past, the official grilling season is over. Look for floor traders to fade the new high on expectations of reduced demand for meat as the Webers go back in the shed.
The tail bar from the final hour of trading Friday shows that sellers had gained the upper hand going into the long weekend in a sign that the multimonth breakout is a fake-out.
Marc Dupee is an independent trader and co-author of the book
The Best: Conversations With Top Traders. Dupee was formerly markets analyst and futures editor for TradingMarkets Financial Group. At time of publication, he held no positions in any securities mentioned in this column, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. While he cannot provide investment advice or recommendations, he invites you to send your feedback to
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