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LCE cocoa stretches rally, but traders cautious

LONDON: London cocoa futures gapped higher on Tuesday to extend Monday's rally, but some traders cautioned about too much optimism.

By midday the December contract was up 11 stg at 971 stg a tonne after trading between 968 and 976. The opening at 970 stg saw a five-stg gap open.

Overall market volume was 4,712 lots, of which 540 were crossed and 331 against actuals.

A strong New York, boosted by fund activity and backed by the KR-CRB commodity index soaring to a five-year high on Monday, offered London the incentive to trade higher.

"It's a little bit dangerous to fall in love with it," a broker cautioned, citing overbought technical indicators and uncertainty about the extent of industry support for the rally.

"At these levels you have to anticipate some profit taking and book squaring," he said.

Sources cautioned also the market would be vulnerable to a sudden slide on any bearish crop reports about the development of West African crops. So far indications suggest a bumper crop is growing.

"Ideally, it would be great if you had some fundamental news to back up the rally," a broker said.

Technical analysts said December's rise in the short term might be limited to 981 stg, a chart top on June 22.

So far on Tuesday origin selling has been met by trade buying which boosted prices to the intraday high, which then sparked fresh buying.

But some of the strength as sapped as prices back tracked to fill part of the opening gap down to 968 stg.

London is now waiting to see whether New York can extend its rally. Based on arbitrage New York is due unchanged, London brokers said.-Reuter