06/24/2014 11:15am CDT
"It's like déjà vu all over again." One of Yogi Berra's finest quotes. I can't help but feel that way watching the sugar futures market. Sugar has been churning from near 19 down to 17.50 basis the now front month October contract since March. Interestingly, the July sugar futures chart shows more of a downward sloping flag formation while the October chart has moved in a horizontal fashion. This demonstrates what in my opinion looks like longer term support for further out months as the trade anticipates a reduction in available supply. Much like Yogi, I can't help but feel that I have been here before. And to complicate the picture it looks like 'hot money' also known as hedge funds or managed money is making bullish bets on fundamentals. Fundamentals? This is not the first time we have seen a commodity with even a modicum of supply disruption story get goosed by hot money. In hogs and cattle the story is real and has the potential to endure. In terms of actual supply of sugar it is hard to see how intermittent dryness in Brazil trumps ample availability of sugar globally. Plus, and this is key in my mind, sugar production continues to be incentivized at these prices. However, China has put in a floor in the sugar market and that sends a clear signal to producers. Again, over the years this is not the first time I have typed those words in this space while talking the short side of sugar. And, like times past, after having talked the short side I am then treated to watching the five minute chart develop to the upside with 1,500 contract bars going off repeatedly as managed money paints a bullish technical picture. What does it all mean? It is likely that now, after 3.5 months of up and down price action and the fact that I have finally discerned that sugar is a trading affair we could maybe be on the verge of a breakout. Technically, we are at the top of a horizontal channel and chewing into resistance. Aggressive short-term traders could take a shot at the short side with hopes the market could drop right back down to 17.50 yet again. And, traders with less tolerance for risk could use puts to position for a move lower as well. Fire up your five minute chart too and if you see 1, 500 lot bars driving the market lower that could be a tell that those who bought low are now selling high. Use your stops though as managed money has more firepower than you or I and if they continue to support October sugar futures it is more than likely it will go higher.
If you'd like to learn more about futures trading or the sugar market specifically, please contact Joe Nikruto at 800-453-4494 or firstname.lastname@example.org.
Oct '14 Sugar Daily Chart
Source: RJO Vantage