Bottom of 7 Month Range. Bounce Required?

December 13, 2017 3:19PM CST

This week’s comment finds the March sugar futures contract trading near steady after six straight sessions lower.  Sugar has dropped from 15.49 to 13.70 in one week but open interest is increasing.  The fundamental story, more supply/surplus, has come into focus again across the wires. Interestingly, soft commodities such as cocoa and coffee have seen a downdraft to new lows or near new lows. This could be year-end position squaring by large participants or just the realization that there is ample supplies of these soft commodities.  Either way, the reality we see on the chart shows the March sugar contract is now squarely in oversold technical territory.  A bounce to 14.50, the 50-day moving average comes in near 14.57, is certainly in the cards. Sugar has found support in the 13.50-13.70 area four times in 2017.  There are projections for surplus in 2018 and more balanced supply/demand in 2019 but sugar remains mired in a range between 13.50 and 15.50. Trend followers have been on the losing side of this lateral chop in sugar while traders willing to take counter trend positions at the top and bottom of the range likely have been rewarded. Look for sugar to bounce back to at least the middle of the range.  Aggressive traders could use February calls to position for a move back to the middle of the range at least. The Feb options do not expire until the middle of January and give traders four weeks to position for another whipsaw.

Sugar March ’18 Daily Chart


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