Cocoa futures dipped into contract lows before rebounding in Wednesday's session. The pause in the sell-off developed at the $2,700 per metric ton level to form the baseline support of a very large Channel Down chart pattern.
The Channel Down envelops the entire trading range in cocoa since early July and covers a price range of more than $400 per ton. The decline from resistance above $3,100 per ton has been unusually persistent, with only a few shallow retracements along the way. The swing low support at the $2,700 level may signal the first meaningful recovery in the market since the slide began in late August.
If the channel support holds, this would be a place where traders are likely to cover short positions as well as enter long positions to capture any move back towards the top of the pattern. A failure to hold the support would be technically very bearish, triggering a downside breakout and a possible prolonged bear market for this commodity. From the current level however, the anticipated short term action is for a continuation of the rally back towards the upper half of the channel/
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