Softs

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

Posted 04/04/2018 3:31PM CTJoe Nikruto

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

Joe Nikruto

Joe Nikruto attended Indiana State University and DePaul University in Chicago with a major concentration in economics. "It was during college that I got a job as a runner at the Chicago Board of Trade. I was immediately hooked," he says.He adds that he also enjoys futures trading because anyone can do it. "Your success depends on how you handle the risk and how much work you are willing to put in. You don't need a big-time Wall Street connection, or a degree from an Ivy League school to get started. Your success largely depends on you and what you put into it." In 1992, he started as a runner and back office clerk for a very large futures commission merchant (FCM). He moved up to pit clerk, then research associate working on the trading floors directly for a grain and livestock concern based in Memphis. He spent time on various trading desks for a large retail FCM and then became Series 3 registered in 1997. He also helped develop an online trading platform and consulted on development and trading of mechanical trading systems. He has always worked to assist his clients with all types of trading-from option strategies and hedging to complicated mechanical trading systems. His advisory background includes Floyd Upperman, McMaster, Walter Bressert, Ken Roberts, Tech Guru, Hightower, Helms and Barry Rosen. As for his involvement with RJO, Nikruto says, "R.J. O'Brien has been in operation for more than 100 years. That is a century of supporting customers. You have to be doing something right for folks who use futures to choose to do business with you for that long."