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CSCE cocoa closes down but above new lows

NEW YORK: CSCE cocoa futures closed lower on Friday, but managed to claw their way back into the upper end of the trading range, after crumbling earlier to new lows on speculative selling, traders and brokers said.

Benchmark March settled down $9 at $765 a tonne after trading from $774 to $751, a new life-of-contract low. Second-position May shed $7 to $798, likewise the back months with the exception of March 2001 which fell $9.

Spot March plunged through a couple of layers of sell stops to hit a new record low, when locals and speculators successfully tried to press prices down, traders said.

"It didn't surprise me. The market has a lovely downtrend in place and all the momentum seems to be to the downside," one trader said.

The trader said Friday's sell off was encouraged by a lack of support from commercials, as industry and trade were buying only small quantities.

"But the market recovered around midday on fund and trade buying and a little bit more aggressive industry-type buying."

Traders and brokers said there was abundant switch activity ahead of spot March contract's first notice day on Feb 15. "The pre-first notice day liquidation of the March contract was a big feature, so you do have a lot of March-May and March-July switch activity," one trader said.

New York cocoa futures fell sharply on Tuesday, hitting their lowest level in over 25 years, when a bearish CFTC Commitments of Traders report triggered stops, taking nearby contracts under the key $800 level.

Traders and analysts said that global oversupply and stagnating consumption levels were major factors influencing the bear trend.

Upbeat West African cocoa arrivals and a stabilisation in top producer Ivory Coast after a Christmas Eve military coup also undermined the market.

"Unless there's a genuine shift on the fundamental side, it's difficult to visualize a major turnaround," Prudential Securities softs analyst Arthur Stevenson said in a recent price outlook report.

In London, LIFFE's March cocoa ended two pounds up at 535 pounds a tonne, after a switch-bound day.

Fundamentally, Ghana cocoa purchases to the end of the 14th week of the 1999/2000 season were a cumulative 359,446 tonnes compared with 312,121 tonnes at the end of the corresponding week of the 1998/99 crop, the Ghana Cocoa Board said Friday.

Technically, traders said nearby support for March cocoa should be at $750 and then $725.

Traders pegged nearby resistance in the contract at $800, then $814.

Volume was an estimated 9,775 lots against Thursday's official volume of 7,290 lots.

The nine-day relative strength index (RSI) of March cocoa remained oversold at 24 at the close on Friday, compared to 26 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