RJO FuturesCast

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Softs

Sugar Breaks Out To The Downside. Now What?

Posted 05/09/2019 2:08PM CT | Joe Nikruto

This week’s comment finds the July sugar contract checking up after dropping below the 12.00 handle. A recent BBC article highlighting 30 million metric tonnes of sugar produced by India may have been the catalyst for the recent downside breakout. Earlier this year, sugar had attempted both downside and upside breakouts only to be dragged back into the range between 12.00 and 13.50. Unlike those attempts this move seems to have the legs to follow through.

Fundamentally, the Indian news and the recent 10-day pullback in energy prices has put sugar on the defensive. This has again put sugar at an inflection point. Trend followers are entering new short positions and increasing the size of the managed money or fund trader category short position. We will see for sure with Friday’s COT report release, but a good guess would place the total short position for the fund trader at or near 100k. Sugar has been very good in recent months at forcing the lumbering Managed money community into positions and then immediately turning the market back on them. A good tell will be how this market reacts around the 18-day moving average. An ability to test, but close below the 18-day moving average can point to lower prices to come.  July sugar will have to be pushed back above 12.65 and 13.68 to force the intermediate and long-term trend followers back to the sidelines.  he 18-day comes in at 12.41.

The Hightower comment this morning spoke of widely followed forecasters calling for a global supply deficit of 2.5 million tonnes. The markets will keep a close eye on that developing possibility but right here, up front, Indian sugar is going to have to find a home outside of India. This could keep the market under pressure. Bearish traders on the sidelines likely must wait for a rally to sell. Aggressive and bullish traders can fade the momentum look for entries immediately.  Not to lecture on risk, but avid market participants can attest that ‘money flow’ can move markets.  Sometimes they move farther than the market should move based on our view of fundamentals alone. Put the stop into the market if you have a trade on. If the stop gets hit, take a moment and celebrate. You have protected your capital and get to play again when the next market sets up.

Sugar Jul ’19 Daily Chart

Sugar Jul '19 Daily Chart

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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."