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Softs

Sugar Correction Continues, Defines New S-T Risk

Posted 06/28/2019 7:46AM CT | RJO Market Insights

Yesterday’s break below Mon’s 12.38 initial counter-trend low reaffirms the still-developing slide from 14-Jun’s 12.95 high that we believe is just a correction of May-Jun’s rally and an eventual buying opportunity.  For the moment however at least the intermediate-term trend remains down with yesterday’s resumed weakness leaving Tue’s 12.66 high in its wake as the latest smaller-degree corrective high and new short-term risk parameter from which shorter-term traders with tighter risk profiles can objectively rebase and manage interim non-bullish decisions like long-covers and cautious bearish punts.

Sugar Oct '19 240 Min Chart

The extent and (5-wave) impulsiveness of May-Jun’s 11.36 – 12.93 rally on a daily active-continuation basis below and gross failure to sustain May losses below significant former support from the 12.08-to-11.69-range are consistent with a broader bullish count that contends this current relapse is just a correction.  Thus far this setback has retraced roughly 38.2% of May-Jun’s 11.36 – 12.93 rally, but until stemmed by a confirmed bullish divergence in mo above 12.66, further erosion should not surprise.  Ultimately on this larger-degree scale, a failure below 21-May’s key 11.36low and long-term risk parameter remains required to negate our call for a major base/reversal environment.

Sugar Daily Chart

Our call for a major base/reversal environment remains predicated on the following technical facts:

  • Oct’18’s bullish divergence in WEEKLY momentum that broke the secular bear trend and 5-wave Elliott sequence down from Sep’16’s 24.10 high
  • historically bearish sentiment/contrary opinion levels
  • impulsive 5-wave initial counter-trend rally expected of a new broader bull market
  • clearly 3-wave corrective behavior from Oct’18’s 14.24 high to 21May19’s 11.36 low
  • exact 61.8% retrace of Aug-Oct’18’s 9.91 – 14.24 rally.

This is a unique and very compelling list of technical facts that warns of a base/reversal environment that could be major in scope.  Perhaps most importantly and as a result of May-Jun’s recovery, the market has been accommodative by identifying key lows at 11.36 and certainly 9.91 from which long-term players can base and manage the risk of an advised bullish policy and exposure.

In sum, we have an interim corrective setback within a broader base/reversal process that warrants a cautious bearish policy for shorter-term traders and a bullish policy for long-term players.  A recovery above 12.66 is required to stem the recent setback and warrant a return to a bullish policy and exposure for shorter-term traders.  Commensurately larger-degree weakness below 11.36 remains required to negate this longer-term bullish count and warrant a move to the sidelines by long-term players.  In the period immediately ahead we will keep a keen eye on shorter-term MOMENTUM and a bullish divergence needed to stem this suspected corrective relapse and present what could be one of the more favorable risk/reward buying opportunities for the second-half of 2019.

Sugar Weekly Chart

RJO Market Insights