Trend is down in sugar but how low can it go?

April 4, 2018 3:31PM CDT

This week’s comment for sugar finds the May futures contract languishing near recent lows. Fundamental pressure and outside market volatility have conspired to keep sugar on it’s heels.  With over two weeks of price action taking place below the 18-day moving average the trend is most certainly down. With the market at 12.24 on Wednesday, the nearest trend following stop is all the way back up at 13.26 and it would take a dramatic reversal of fortune to even turn the trend sideways. With May sugar futures squarely in oversold territory it should come as no surprise when this market finds a way to post a relief rally.  Aggressive traders could even try to position for this with inexpensive call options.  Other than a relief rally it requires imagination to see this market sustaining a trend change. Of course, once we cannot locate even one bullish fundamental this can be a bullish signal in and of itself.  The bear case is well known and well trafficked: Lots of sugar. Less being imported by major Asian players. And harvest coming on in Brazil.  Many traders will be tempted to position from the long side simply as a contrarian play.  The commercial trader category is very long, and the fund trader category is very short. This should catch our attention and speak to the possibility that the market is over-extended to the downside.  It is not, however, a clear signal to be long yet. The trend is down. That must be respected.  Any talk of long positions for longer term traders would be premature. But, short-term traders who think they can catch the falling knife by the handle could be well rewarded should this market rally up and test trend followers with stops near 13.26 and 13.81.

Sugar May '18 Daily Chart

sugar_may18_daily_chart

RJO Futures | 222 South Riverside Plaza, Suite 1200 | Chicago, Illinois 60606 | United States
800.441.1616 | 312.373.5478

This material has been prepared by a sales or trading employee or agent of RJO Futures and is, or is in the nature of, a solicitation. This material is not a research report prepared by RJO Futures Research Department. By accepting this communication, you agree that you are an experienced user of the futures markets, capable of making independent trading decisions, and agree that you are not, and will not, rely solely on this communication in making trading decisions.