This week’s comment finds the October futures market with murky fundamentals. The technical picture leaves me thinking this October contract could be at a crossroads. It is likely that one way or another we won’t be seeing the current price level for much longer. Hightower group suggests that if the lows do not hold this market could move into the 12’s quickly. What one can see clearly looking at the COT charts is the commodity trading funds appear to be as a short as they have been in five years. And that’s because that is only as far back as the COT chart I had handy goes back. It is likely we would need to see either more churn here at these price levels or upside extension that would allow price levels to be surmounted. Violation of upside price targets will force funds to take profits and leave those contracts available to be resold should the market continue to erode. Awkward to say that the market would have to go higher to go lower but that could be exactly where we stand. At this point we have a rough ‘cup with handle’ pattern on the chart. The October contract is attempting to hold the 18 day moving average, 13.48 but the recent lows, 12.74 lurk nearby. I would be surprised to see this market make new lows quickly and easily. That doesn’t mean it can’t happen. Whatever side of the coin you happen to land on the October contract could make for smart trading. If we hold the 18 day and start back toward the 50 day moving average, 14.67, long calls either out-right or via spreads will be the place to be. The October options don’t expire until September 15 so they offer plenty of time as well.
Oct ’17 Sugar Daily Chart