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CSCE cocoa plunges to new lows on spec, arb sales

NEW YORK: CSCE cocoa futures slumped to their lowest level in 25 years on Tuesday as continued speculative liquidation and arbitrage selling dragged contracts to new liftime lows across the board.

"You saw a combination of selling today. Some very good spec selling, very heavy arbitrage selling and pretty good speculative profit taking out there also," one broker said.

Benchmark March closed down $32 at $763 a tonne. The contract touched a new lifetime low of $757, while the intra-day peak stood at $793. The rest of the board also sank to new contract lows, with second position May hitting a low of $790 to also close under $800. Back months dropped $33-$36.

The market took an initial beating from follow-through speculative selling, setting new contract lows within minutes of opening.

"When you hit those record lows underneath the $780 area, I think a lot of people had that as a target and came in here to do profit taking," one broker said.

Further currency-related arbitrage selling and speculative profit taking triggered sell stops underneath the $775 level (March basis), traders said, pushing prices to their intraday low, with light manufacturer scale buying all the way down.

"Basically what's happening is this long position is being taken out and maybe its simply technical, but it's forced by uninspiring consumption and ample supplies," Ann Prendergast, softs analyst with New York-based brokerage Refco Inc said.

Traders said the latest CFTC commitments of traders report which showed smaller speculators holding a hefty net long position had triggered the move under $800 on Monday.

"People have been long in cocoa for a long time and they're starting to get out," one trader said. "Industry has been a good buyer, but didn't want to chase it.

Upbeat arrivals in Ivory Coast, coupled with unimpressive buying by chocolate manufacturers contributed to Tuesday's four percent drop in prices (March basis).

Traders and analysts said they wouldn't be surprised to see further falls in U.S. cocoa futures prices. "I don't think one day makes a bottom. I'm sure you're goingt o have a couple more days of probing," the broker said.

In London, origin and fund selling in switch-dominated trading pushed LIFFE's March LCCHO down 31 to close at its new lifetime low of 521 pounds a tonne, trading up to 547.

Technically, traders said nearby support for March cocoa should now be at $757, followed by $750 and then $725. They pegged nearby resistance in the contract at $800, then $814.

Volume reached an estimated 17,718 lots against the previous official volume of 10,645 lots.

The nine-day relative strenth index (RSI) of March cocoa stood at 13 at the close on Tuesday, compared to 21 previously.

Technicians normally believe an RSI reading of 30 or less is an indication that the market is oversold, while 70 or more is usually a sign it is overbought on a short-term basis.-Reuters