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Shrinking fund long, reduced open interest in sugar. Fuel for a rally fire? | RJO Futures

Posted 05/03/2017 3:30PM CT | Joe Nikruto

This week’s comment on the now prompt July sugar contract finds our market dealing with selling pressure yet again. The inability to close or even trade much above the 18-day moving average is a hallmark of a down trending market. Today’s Hightower group letter mentioned that a large bank known for following commodities believes that the downtrend in sugar could be coming to an end, and higher prices could be on the horizon. The fund trader position has been whittled down to a mere 15k contracts and open interest has been contracting as well. Tea leaves that could be signaling the time is close for a technical rally if not a sea change in the fundamental picture. Since February, the downtrend has punished those who have dabbled on the long side early. Huge volume on the down move on April 26 could signal a near term low. Recent lows in July, 15.35 and Monday’s high, 16.49 have the July Sugar futures contract neatly hemmed in.  Technically, it is hard to see how much lower this market can go without going higher first. The 15k contracts that remain are likely of the Jim Rogers, Investment Biker category. These folks hold commodity futures from the long side as long term investments or hedges against inflation. They likely won’t be chased out by something as unimportant as lower prices. China has been buying sugar hand over fist as the price has dropped but at the same time they are ramping up export of corn based sweetener to the rest of Asia. This could be the quietly dominant fundamental conspiring with plentiful supplies to keep prices depressed. Don’t rule out a short covering rally. The 50-day moving average comes in at 17.45. But in order for a short covering rally to take hold the July contract has some work to do. It will be hard to make a case for funds to cover shorts until July sugar can at least post a few closes over 16.32.  

 

Jul ’17 Sugar Daily Chart

Jul '17 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."