‘Smart money’ hedgers have proven themselves over time to have an excellent handle on assets once they have reached an extreme. For Cocoa, they are holding extreme ‘short’ positions last seen at the end of September 2014. From the first week of October 2014 through to January 2015 Cocoa depreciated by 30%.
However, trying to ‘Time the markets’ using sentiment data on Smart Money Hedgers alone is tricky! They can hold extreme Long or Short positions for weeks before the asset in question reaches a turning point.
From a technical standpoint, some would argue that a turning point is on the horizon, we are inside a bearish reversal rising wedge pattern, and up against resistance and a double top pattern is in play.
However on the flip side of the bearish outlook, we need to keep in mind Cocoa broke out of its ascending channel during January this year and is now in a steep uptrend, not forgetting most chart patterns and indicators have approximately a 40% failure rate.
For me, I’m more biased towards the bearish outcome, providing resistance holds and we convincingly break below rising wedge support. Only then I will look to enter a short position with the first target at rising trendline support (top side of ascending channel).