Cocoa futures executed a downside breakout in Monday's session to confirm the first sell signal of the recent strong rally. After gaining nearly $500 per metric ton during the last half of January, profit taking near the $2,500 level has completed a Rising Wedge chart pattern with the breach of support illustrated here by Autochartist. This Rising Wedge spans the entire price range of the rally and terminates at the breached support level near $2,350 per ton. The sell signal was generated at this level, maintaining a high degree of technical clarity but lacking in momentum.

The minimum projected price is $2,199 per ton and the bottom of the forecast shows a possible 100% retracement of the uptrend to carry the market back below the $2,000 level.

While this is a short-term bearish pattern, the gains in cocoa so far this year have been extraordinary. The potential remains quite high that this pullback will prove to be a buying opportunity in the longer term. Traders playing the short side should maintain stop-loss orders in the event of a sharp reversal once the breakout is complete.

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