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Rally or Epic Rollover on the Way to New Lows in Sugar?

Posted 07/26/2017 3:32PM CT | Joe Nikruto

This week’s comment on the October sugar futures contract finds dueling fundamentals and a technical jury that is still out.  You would have been excused for thinking that three sessions of dancing on the 50-day moving average followed by Tuesday’s over 50 point drop left the question asked and answered. The question at hand: Is the trend in sugar turning up?  The October contract has been steadily carving out a bottom on the chart since late June. The inability of the October sugar futures contract to convincingly surmount and close above the 50-day moving average combined with the 50 point drop seemingly answered the question. Look out below. But today’s move back to the 50-day moving average, 14.34, opened the door to further upside. Fundamentally, the Hightower group highlighted what is essentially a tax on blended gasoline in Brazil that will increase the demand for sugar based ethanol reducing the supply of sugar.  Large banks came out with revisions higher for sugar prices for the rest of the year. Supply from Brazil continues to increase and the Chinese are adding tariffs on sugar imports.  I continue to believe they are doing this to increase usage of stockpiled corn for sweetener. The COT shows slight adjustments to the positions of the large spec and the commercial trader. These positions are about as  large as they have been for some time on both sides of the coin. A quick look at the recent history shows these two can churn for months in and out of positions while prices continue to rally or in this case erode. Fund short covering won’t be the only fuel this new uptrend fire would require, but it is a solid piece of the puzzle. Don’t be afraid to move ahead of the fundamentals using call spreads.  A solid close above the 50 day moving average could be viewed as a trigger to begin to build this position. Failure to hold above the 18 day, 14.03, and a turn down in the shorter turn moving averages would provide good risk management for exiting any calls.  A hallmark of a bear market is an inability to hold above the 50-day moving average. Stay nimble and don’t try to fight the tide if it is against you.

 

Oct ’17 Sugar Daily Chart

Oct '17 Sugar Daily Chart

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Joe Nikruto

Senior Market Strategist
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."
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