March sugar headed for breakout or next fake out?

December 28, 2017 1:56PM CST

This week’s comment finds March sugar continuing its rapid rise. Eight days ago March sugar was carving out new lows for the move below 13.70.  Funds were getting shorter, commercials were getting longer. But oh what a difference eight days has made. Funds who were adding short positions and getting shorter as the market moved lower have likely been, yet again, forced to capitulate and cover. 15.20 is the line in the sand that should the March contract cross and hold funds will be then pushed into new long positions.  The Hightower group this morning valiantly fitting a comment to sugar in a holiday trading environment highlighted bullish ideas.  Increased demand, currency impact on sugar production in Brazil and index fund rebalancing.  The index fund rebalancing is interesting because as Hightower mentions, the index funds are expected to add 60k contracts in the first week of January.  Over the years, I have been surprised at some markets ability to absorb these additions and subtractions by index funds.  Index funds hold futures contracts in commodity markets as a hedge against inflation.  From year to year these positions are rebalanced according the formulas used by these market participants.  While it is hard to assign a trade to events like index fund rebalancing it would be wise for traders looking to short this recent rally to be aware.  15.20, at the time of this writing, only 20 points away is the place where funds should begin to add long positions.  15.20/15.22 is a double top put in on the March sugar futures chart in late November. These levels loom large and appear to be where March sugar is headed.  Will this be THE breakout or another fake out?

Sugar Mar ‘18 Daily Chart

sugar_mar18_daily_chart

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