Softs

Big Volume on The Sugar Rally. Small Change in Open Interest

Posted 01/16/2019 9:33AM CTJoe Nikruto

This week’s comment finds March sugar fully breaking out to the upside. 120, 000 contracts traded in the March contract on Jan 15th, resulting in a mere 6,000 contract change in open interest. With many government agencies sidelined by political in-fighting there is no account of which trader category holds what size position. It is likely however, that commodity trading funds who were sellers on a trend-following short entry signal 10 days ago were big buyers yesterday. The resulting chart formation is a very good example of what trend-following as trading strategy looks like when it does not work.

We have been waiting for further evidence that production has been declining and yesterday we got some. Hightower comment this morning points to data released by UNICA, the largest sugar producers organization in Brazil, suggesting that sugar production decreased in the second half of December by 38% year over year. This is not the only headline number we will be watching for signs that lower prices have begun to impact production but a step in that direction. Traders will need more confirmation of declining production and continued demand globally for yesterday’s action to ultimately be more than a short squeeze. The number of contracts traded and the relatively small decrease in open interest, coming at a time when many chart watchers are flying blind without Commitments of Traders data, leaves this move ever so slightly suspect.

Fundamental sugar watchers are seeing less sugar. Technical traders see a chart that points to full steam ahead for a rally.  Intermediate trend-followers are getting long now with yesterday’s close over 13.14.  Longer term trend-followers are looking for a move over 14.25 to enter long positions. In the March contract the 50-day moving average comes in at 12.53. If the trend has changed and this rally has legs that will be a level the market should be able to hold above.

Sugar Mar ’19 Daily Chart

Sugar Mar '19 Daily Chart

If you would like to learn more about softs futures, please check out our free Fundamentals of Softs Futures Guide.

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."