NIB - Chocoholics revolt


noun \ˌchä-kə-ˈhȯ-lik,
A person who likes to eat chocolate very much

Sure, most food prices have been rising but when it comes to chocolate, for some, it becomes personal. Mars, the company behind the likes of M&M's and 3 Musketeers, said it was raising prices for chocolate products in the U.S. by about 7 percent to make up for higher ingredient costs. The decision followed a similar move from Hershey a week prior to Mars’ proclamation, which announced an increase of roughly 8 percent in wholesale prices.

A look at the price chart of the ETF that tracks cocoa prices (NIB) you can see prices have been on a tear since the first part of last year. After falling almost 50% in less than a year, prices bottomed in 2012 (somehow I don’t remember seeing the announcements from candy makers for a reduction in candy prices back then because of lower ingredient costs.  Hmmmm… how can that be?). For the next year prices bounced around and once again found a bottom (and note how it turned out to be) at exactly the same price in 2013 as it was in 2012.  In April 2013, price broke out of the blue down trend (resistance) line, retested that same line again in May and June and then began its comfortable, steady rise since. Prices have climbed 50% from the bottom.

Since the 2013 bottom, you can see price has been well contained and nicely bounded by the rising blue channel.   Also note the support/resistance line I drew in the 39-40 area. You can see back in 2011 that was an important area as price bounced off of it many times (it acted as support). Price eventually broke through to the downside after multiple attempts to hold. Even though price broke through that level, it still remains very important but rather than acting as support, it flips to resistance. So it should not surprise anyone that the first time price tried to move above it in April of this year it was rejected. Rarely does a support/resistance area of historical importance get penetrated on the first attempt.  After hitting that area initially, price moved back down to the lower blue channel in an attempt to build up enough energy (find more buyers) to make it through on the next attempt. Its easy to see why it was able to make it on the second attempt when you look at the huge spike in volume that occurred. The bulls stepped in with conviction. Now with price above, that line that was resistance will act as support in the case of a pullback.

With price not overly extended and all indicators bullishly configured, I would expect we see even higher price in our future. This combined with the fact cocoa prices typically peak in December (as you can see in the chart below), a retest the prior highs of 51-52 seems likely.  If this is the case, you chocoholics may want to go to Costco now and load up in bulk before the manufacturers find another reason to raise prices.