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The FOUR ingredient recipe for a $200 chocolate rally!

by , 08 September 2020
The FOUR ingredient recipe for a $200 chocolate rally!
You may not know this but two-thirds or 60% of the world's supply of cocoa beans come from West Africa each year.

This includes the Ivory Coast and Ghana (2nd biggest cocoa producer).

Just to put it into perspective, Ghana's cocoa sector employs over 800,000 rural families. It also produces around R33.58 billion in foreign exchange.

This year we've seen a major slump in cocoa prices.

We saw a drop from a high of $2,050 per ton down to $1,520.

According to the COCOBOD, the fall in cocoa prices was mainly due to the COVID-19 crisis.

This has cost Ghana alone over R16.79 billion.

But in the last two months, we've seen a strong recovery in cocoa prices as investors and consumers are once again able to open shop.

In this article, I want to discuss why I expect a $200 rally in cocoa prices in the next two months.

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This industry is about to go into orbit…
Research firm Markit estimates this $1.3 billion industry will explode in revenue into $12.3 trillion.
$12.3 trillion!
To put that into perspective... That’s 24 times more money than Walmart makes in a year.
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Ingredient #1: Better food company earnings
With the world slowly opening their borders, allowing trade and businesses to operate again, we are starting to see a big improvement with company earnings.
According to Carlos Arzeno, senior commodity analyst at Rabobank, he told CNBC the following:
“We have company results for food companies that were very encouraging, and supermarket sales continued to do well, so on that side at least, from the company results for Q2”
He also suggested that the reason for the rally with soft commodities (such as cocoa beans) was because investors were re-entering the market once again.
And it’s clear that in the second quarter of 2020, we saw the price of cocoa rally over $220 to $1,800.
And I believe this is just the start.
Ingredient #2: Increased welfare for cocoa farmers
Joseph Aidoo, COCOBOD CEO, said that they have taken ‘a bold decision that will protect the welfare of the 1.2 million cocoa farmers in Ghana'.
The government has created this incentive to help better the levels of productivity and efficiency when it comes to cocoa beans.
In fact, in October, if a farmer’s cocoa trees are diseased or don't bear cocoa beans any more then the COCOBOD will be allowed to cut them down, pay for each tree and the government will replant for free.
As a result they expect Ghana's output to increase by 5.18% in 2020/2021.
With this positive news, I’m sure many investors will jump on board knowing that these incentives and forecasts will lead to a better future for cocoa beans and its price.
Ingredient #3: A weaker US dollar
As you know, the US dollar is the world’s reserve currency and is the benchmark for pricing most commodities.
And when the US dollar weakens, against other foreign exchange instruments, commodity prices (like cocoa beans) tends to rally.
Let’s take a look at the US dollar chart.
Since March, the US dollar has been falling as you can see in the weekly chart 
In fact, the US dollar has officially reached the lowest level since April 2018 at around 92.37.
I can imagine the main reasons for the falling dollar includes inflationary measures such as: the almost zero interest rates, unprecedented stimulus packages and uncertainty with the economy’s future.
And so right now, there is a strong inverse correlation between the price of cocoa and the US dollar, which doesn’t seem to be coming to an end yet.
I believe, the price of cocoa is going to continue up over the coming months and the charts agree.
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Ingredient #4: Two technical signals for cocoa’s next $200 rally
Looking at the daily price chart of cocoa beans, we can see the price has been on a strong downtrend from 1 May 2020 up until 20 August 2020.
It then broke up and out of the downtrend (Red line), and entered into a new and established uptrend.
Not only that, since 10 June 2020, Cocoa formed an Ascending Triangle.
This is one of the breakout patterns I wait for, which looks like a rising triangle with the following two characteristics. 
1. Rising low prices
2. Same high prices
Last week, we officially had a strong breakout above the Ascending Triangle telling me that the buyers won and are now dominating the market.
If we consider the factors I’ve mentioned today, along with the chart analysis, we can expect the price of cocoa to head up over $200 to the next price level at $2,000.
There are two main reasons, why I expect the price to head to this level.
First, it is the previous resistance level (ceiling), which the buyers will most likely buy up again.
Second, it is a round number or psychological price level which creates a confirmation bias and benchmark for traders to send the price to.
Here’s how I’ll profit from the 11.11% rise in cocoa
You can go long (buy) the Cocoa CFD and hold it until it hits the target and bank a decent profit.
If you're not sure when to buy in or how to calculate the target on when to go out then why not join my service where I make it really easy for you to know what to do. Click here to join for a risk-free trial… 
Trade well,
Timon Rossolimos
Analyst, Red Hot Storm Trader

The FOUR ingredient recipe for a $200 chocolate rally!
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