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Cocoa May Extend Declines to Nine-Month Low: Technical Analysis

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Cocoa May Extend Declines to Nine-Month Low
The beans used to make chocolate have dropped 16 percent the past two months, partly on speculation of bigger harvests in the Ivory Coast and Ghana, the world’s largest growers. Photographer: Jane Hahn/Bloomberg

Aug. 19 (Bloomberg) -- Cocoa may extend declines to a nine-month low of 1,995 pounds ($3,115) a metric ton in London in the coming weeks after falling through previous support levels, according to technical analysis by Commerzbank AG.

The attached chart shows cocoa fell below a one-year trend channel, its 200-day moving average and the March and April lows of 2,096 pounds and 2,100 pounds. The second chart shows the beans may slide toward the “psychological” level of 2,000 pounds and the November low of 1,995 pounds.

“We are definitely bearish,” Axel Rudolph, a technical strategist at Commerzbank in London, said in an interview. The March low “seems to be acting as resistance now. As long as we stay below it on a daily basis I wouldn’t be surprised if we head down to the next target area and that is the November low” of 1,995 pounds and the 2,000 pound level, he said.

Cocoa for September delivery yesterday fell 0.2 percent to 2,072 pounds a ton on NYSE Liffe, the lowest closing price since Nov. 19. The beans used to make chocolate have dropped 16 percent the past two months, partly on speculation of bigger harvests in the Ivory Coast and Ghana, the world’s largest growers. Farmers there usually start the larger of two harvests in October.

Cocoa may decline to a long-term trend line drawn from June 2009, currently at about 1,925 pounds, if prices drop below the 2,000 pound area, Rudolph said. The commodity may fluctuate near the March and April lows for a few weeks if prices close above the Aug. 17 high of 2,119 pounds, he said.

“I’d be very surprised if it were to go up from here,” Rudolph said.

In technical analysis, investors and analysts study charts of trading patterns and prices to predict changes in a security, commodity, currency or index.

To contact the reporter on this story: Nicholas Larkin in London at nlarkin1@bloomberg.net.

To contact the editor responsible for this story: Claudia Carpenter at ccarpenter2@bloomberg.net

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