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Below I have attached a weekly and daily December Cocoa price chart. I have currently assessed the decline commencing at the highs in late December 2015 as an impulsive (C) wave decline of a larger (A-B-C) structure. The (C) wave substructure needs to unfold in a 5 wave sequence. These are numerically labeled on the weekly chart. It is my contention that the consolidation we have witnessed from May of this year to the present is a triangle whose pattern is recognizable in B and 4th waves. If my proposed scenario is accurate we should fall in a final and 5th wave decline. The 1 x 1 projection and geometric extension levels converge at +/-1600. It is perhaps no coincidence that senior technician Alan Palmer has proprietary support and target Olive Line checking in at a similar location. What I believe is attractive in this setup is the fact that the risk is well defined and the reward ratio is extremely favorable.

Please join me next Wednesday as I apply the wave theory to this and other commodity markets.

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The strategy we are suggesting utilizes an option risk-reversal. In executing this one would purchase the March 1900 put and simultaneously sell the December 2200 call for a total $230 debit. This analysis breaks down above 2100 at the (c) wave extreme of an (a-b-c-d-e) pattern. If this is indeed the final (e) wave of the move then the market will unravel from these levels.

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About the author

John Lunney began his trading career in 1989 as a clerk for IFO, the largest futures and futures options brokerage on the CME floor. Within one year, John was promoted to an executing floor broker responsible for handling large individual and institutional accounts. John’s knowledge of option theory and tactics quickly attracted a growing customer base. In 2000, John began exclusively trading futures and futures options for his own account. John later became a founding member of VI Capital, a proprietary trading company funded with personal and investor funds. At VI Capital, John was the director of risk management, technical analysis and strategy development. VI Capital realized multi digit returns over the course of 8 years of trading.

John has extensive trading experience in stock indexes, metals, commodities, energy and agriculture products. He believes that hard work reveals the best trading opportunities, and strong discipline creates consistent results. John possesses a unique ability to connect with customers, understand their goals, and work with them to create long and profitable relationships.

Contact John
Phone: 312-957-8108 or 888-391-7894

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