Mixed Performance in Commodities Market Last Week, One Commodity Below Resistance Level – US Cocoa

Global Commodity Market Wrap-Up

The metals market showed a mixed performance last week, with precious metals continuing their positive momentum while base metals had varying results. Gold reached a new peak, rising by 1.08%, and silver surged 3.46%. On the other hand, base metals experienced mixed movements—copper dropped by 2.56%, lead gained 0.40%, and zinc saw a significant decline of 3.35%. These fluctuations reflect changing investor sentiment and demand trends across different metal sectors. The previously stable market conditions gave way to increased volatility, with shifting dynamics expected to influence prices shortly. The overall market direction remains uncertain, driven by evolving trends.

Last week, natural gas prices plunged 11.35%, driven by supply constraints and heightened seasonal demand. Crude oil followed suit, falling 2.68%, as market uncertainty and shifting investor sentiment weighed on prices. In contrast, U.S. sugar prices rose 1.74%, standing out from other agricultural commodities, which experienced declines. These movements reflect the ongoing influence of supply-demand dynamics, with investor strategies adjusting to global economic uncertainties. The energy and agricultural sectors are navigating a period of increased volatility, with supply disruptions and shifting demand patterns contributing to an evolving market environment. This ongoing adjustment is expected to continue shaping price trends in these markets.

Global commodity prices have found stability near key support levels, influenced by various global factors. Precious metals continue to trade above critical support zones, indicating the potential for a bullish trend. In the energy sector, natural gas remains volatile with a broad price range, while crude oil is showing signs of recovery from solid support levels. Agricultural commodities are facing downward pressure, impacted by varying sector-specific conditions. This market environment, marked by both stability and volatility, requires a cautious approach. Investors are closely monitoring economic and geopolitical developments, weighing risks and opportunities as they navigate the evolving landscape in the commodities market.

The upcoming Micro and Macroeconomic events that may impact market sentiments include an update ISM Manufacturing PMI, JOLTS Job Openings, ADP Nonfarm Employment Change, ISM Non-Manufacturing PMI and Nonfarm Payrolls.

Having understood the global commodities performance over the past week, taking cues from major global economic events, and based on technical analysis, noted below is the recommendation with the generic insights, entry price, target prices, and stop-loss US Cocoa March Future (ICE: CCH5) for the next 2-4 weeks duration:

US Cocoa March Future (ICE: CCH5)

Price Action and Technical Indicator Analysis:  Cocoa futures for March are trading below a descending trendline and a bearish candlestick pattern, signalling the potential for further downside. The price opened lower, trading beneath the 21-period Simple Moving Average (SMA), which suggests a continuation of the bearish trend. Increased trading volume supports the likelihood of a trend reversal after reaching a high. On the daily charts, a strong resistance level adds to the negative outlook. The Relative Strength Index (RSI) stands at 48.88, indicating bearish momentum, while the 50-period SMA offers short-term support. These technical indicators suggest a bearish market trend for cocoa in the near term.

Now the next crucial support levels appear to be at USD 10010.00 and USD 9600.00, and prices may test these levels in the coming periods (2-4 weeks).

As per the above-mentioned price action and technical indicators analysis, US Cocoa March Future (ICE: CCH5) is looking technically well-placed for a ‘Sell’ rating. Investment decisions should be made depending on an individual’s appetite for downside potential, risks, and any previous holdings. This recommendation is purely based on technical analysis, and fundamental analysis has not been considered in this report. Technical summary of the ‘Sell’ recommendation is as follows:

Upcoming Major Global Economic Events

Market events occur on a day-to-day basis depending on the frequency of the data and generally include an update on employment, inflation, GDP, WASDE report, consumer sentiments, etc. Noted below are the upcoming week's major global economic events that could impact commodities’ prices:

Futures Contract Specifications

Disclaimers

Related Risks: Based on the technical analysis, the risks are defined as per risk-reward ratio (~0.80:1.00), however, returns are generated within a 2-4 weeks’ time frame. This may be looked at by Individuals with sufficient risk appetite looking for returns within short investment duration. The investment recommendations provided in this report are solely based on technical parameters, and the fundamental performance of the commodities has not been considered in the decision-making process. Other factors which could impact commodity prices include market risks, regulatory risks, interest rates risk, currency risks, and social and political instability risks etc.

Note 1: Past performance is not a reliable indicator of future performance.

Note 2: Individuals can consider exiting from the commodity if the Target Price mentioned as per the Technical Analysis has been achieved and subject to the factors discussed above.

Note 3: How to Read the Charts?

The Green colour line reflects the 21-period moving average while the red line indicates the 50- period moving average. SMA helps to identify existing price trend. If the prices are trading above the 21-period and 50-period moving average, then it shows prices are currently trading in a bullish trend.

The Black colour line in the chart’s lower segment reflects the Relative Strength Index (14-Period) which indicates price momentum and signals momentum in trend. A reading of 70 or above suggests overbought status while a reading of 30 or below suggests an oversold status.

The Blue colour bars in the chart’s lower segment show the volume of the commodity. Commodity with high volumes is more liquid compared to the lesser ones. Liquidity in commodity helps in easier and faster execution of the order.

The Orange colour lines are the trend lines drawn by connecting two or more price points and used for trend identification purposes. The trend line also acts as a line of support and resistance.

Technical Indicators Defined: -

Support: A level at which the stock prices tend to find support if they are falling, and a downtrend may take a pause backed by demand or Selling interest. Support 1 refers to the nearby support level for the stock and if the price breaches the level, then Support 2 may act as the crucial support level for the stock.

Resistance: A level at which the stock prices tend to find resistance when they are rising, and an uptrend may take a pause due to profit booking or Selling interest. Resistance 1 refers to the nearby resistance level for the stock and if the price surpasses the level, then Resistance 2 may act as the crucial resistance level for the stock.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

Risk Reward Ratio: The risk reward ratio is the difference between an entry point to a stop loss and profit level. This report is based on ~80% Stop Loss of the Target 1 from the entry point.

The reference date for all price data, volumes, technical indicators, support, and resistance levels is February 03, 2025 (Chicago, IL, USA 00:00 AM (GMT-6). The reference data in this report has been partly sourced from REFINITIV.

Note: Trading decisions require a thorough analysis by individuals. Technical reports, in general, chart out metrics that may be assessed by individuals before any commodity evaluation. The above are illustrative analytical factors used for evaluating the commodity; other parameters can be looked at along with additional risks per se.