Cocoa futures bounced off of a key support level after sliding over $150 per metric ton in the latest sell-off. Autochartist has detected this support level as the lower end of a Flag chart pattern, illustrated here on the 240-minute time frame on the emerging patterns platform.
Cocoa briefly traded below $2,000 per metric ton at the swing low of the latest decline, a price level which has not been seen since 2009. The successful retest of the flag support trend line leaves this level as a good place for possible short-covering as well as value buying to enter the market, encouraging a bounce towards the upper resistance band.
The anticipated move higher projects the price to move towards the $2,080 per ton price. A move above here would trigger a pattern breakout, which could in turn establish the low of the Flag formation as a major cyclical low in Cocoa futures.
Conversely, a pullback in the week ahead would jeopardize the support level and set up for a potential downside breakout. If this does materialize, it would exceed the prior lows and set a very bearish resumption of the downtrend in motion for the longer term.
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