CEA Monthly Issue – November 2015
Commodity Industry: Cocoa
Without question, the commodity bearishness we spoke of last month is still in full swing. Gold, oil, natural gas, silver, platinum, palladium- they’re all trading at or near multi-year lows this week.
What’s sending all these commodities lower?
Much of the downturn is due to the surging US Dollar.
As you may know, the world’s reserve currency is breaking strongly higher in recent trading. Investors are pricing in the growing likelihood of a December Fed interest rate raise thanks to the much better than expected October US jobs report.
With the Greenback in full breakout mode, most commodities are facing renewed bearish headwinds.
Except for cocoa…
The commodity is rallying to higher ground this week as investors price in the looming ill effects of El Ninó. In case you’re unaware, climate scientists believe this year’s El Ninó will be the strongest in 18 years.
That’s bad news for cocoa production…
You see, West Africa typically sees abnormal dryness due to the disruptive weather patterns created by El Ninó. And since this region holds four of the top cocoa producing countries in the world, there’s considerable risk to supply going forward.
So here’s what we’ll do…
Let’s establish a long position in the iPath Bloomberg Cocoa ETN $NIB. This cocoa price tracking asset rises and falls with the price of cocoa.
Given the fundamental backdrop, there’s a strong likelihood cocoa continues rallying to higher prices in coming months.
We’ll discuss this trade in more detail in our upcoming monthly update on November 24th. For now, just focus on acquiring $NIB at any price under $43.90.
Here are a few additional details on our purchase…
Technically Speaking:
WHAT TO DO NOW:
iPath Bloomberg Cocoa ($NIB) is trading at $43.43
Buy $NIB up to $43.90 per share
Our profit target is $50.00 or more
Risk Control Price is $39.09 (or a 10% stop loss from your entry point)
Category: Commodity Trading
