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Open Interest in Sugar Declines, More Strength Required to Extend Rally

Posted 11/01/2017 12:53PM CT | Joe Nikruto

This week’s comment finds the March sugar futures contract having rallied almost a full point since October 24. A healthy move by sugar standards. The bulk of that move took place on Friday October 27 with the March contract closing up 50 points. In the three trading sessions since then, open interest has dropped about 30k contracts as the risk managers caught up with short traders. After having bounced along between 14.00 and 15.00 for so long, any move toward that upper or lower boundary looks like a potential breakout. This move is no different. Trend followers have been stopped out of recent shorts entered in late September on the break below 14. In the last few trading sessions, this short position was covered on the close above 14.50. With the 30k reduction in open interest, declining volume on the consolidation of the break out, and Wednesday’s late day sell off, this recent rally may have run its course. Again, the 50-day moving average will help us sort out the tea leaves. If sugar is able to hold above 14.40, in my opinion, this market could continue to test upside levels such as the 23.6% retracement level, 15.11 and recent high from September, 15.20. Failure to hold 14.40 could set the stage for yet another run at the lows. The fundamental situation, well known and well trafficked, still looms. Wednesday morning’s Hightower comment brought up a recent report from analytics firm Green Pool. They are calling for the largest surplus in sugar in more than a decade. Green Pool attributes this surplus to increased supply and declining consumption. This report and others like it just keep coming, all speaking of rising odds of increasing surplus. I am always suspicious of “feelings” around fundamentals, but this increasing surplus situation “feels” like it could continue to pressure sugar for some time. I don’t want to stand in the way of technical strength should it be demonstrated in the coming days, but if the March sugar contract should falter near the 50-day moving average traders will want to be positioned for the potential for new lows. 

 

Mar ’18 Sugar Daily Chart

Mar '18 Sugar 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."