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Sugar Can’t Break Out – May be Signaling Impending Break Down

Posted 01/10/2018 3:42PM CT | Joe Nikruto

This week’s comment finds our March sugar futures contract back below the 50-day moving, 14.75. The close as of this writing showed March sugar futures at 14.61. This on a day when February crude oil made yet another high.  Wire services speak to the ‘trade’ waiting for index funds to show up as buyers.  A quick look at volume for the last three days shows they may have been wading in on the way down.  COT report from eight days ago says the funds are short but it is easy to guess that they may be getting shorter after the failure of the March contract to breakout to the upside. Trade continues to watch Brazil offtake of sugar cane for ethanol vs processing for sugar, and it makes for good comment, but that may not be enough to save sugar from the surplus that remains globally.

Sugar has done a great job of running up into the 15.00 level in the second half of 2017.  What appeared to be a labored bottoming process that would resolve to the upside has left the chart looking a little heavy. It has been difficult for directional, trend following traders to stay on the right side of a market that has threatened upside breakout one week and revisited recent lows the next. So goes trading. But the more often sugar is unable to hold above the 50-day moving average the more challenging the outlook for higher prices.  Notable television commentator and hedge fund manager out this week speaking on the tendency of commodities to rally during the late economic cycle period.  This is a compelling argument for commodity ‘investors’ to take long positions.  Or, begin to look again at trend following programs. Should inflation begin to take hold in any meaningful fashion commodities prices could rise across the board and investors would be wise to plan ahead. And, ultimately if the ‘synchronous global growth’ narrative holds true demand for commodities has to increase. But for traders, the tea leaves could be showing sugar marking time and renting shorter duration puts in anticipation of a move to the recent lows could make sense.

Sugar Mar ’18 Daily Chart

sugar_mar18_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."