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March sugar headed for breakout or next fake out?

Posted 12/28/2017 1:56PM CT | Joe Nikruto

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

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."