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Sugar has Potential for Corrective Rally in Down Market

Posted 08/09/2018 11:11AM CT | Joe Nikruto

This week’s comment finds October sugar marking time after a brief short covering rally last week. Summer doldrums and lack of new news may be conspiring to leave sugar without sponsorship and unable to attack overhead resistance. Technically, the October futures contract is laying on the short-term moving averages. The 10 and 18- day moving averages, 10.79 and 10.93 respectively, have fenced price action for the last few days. Without further travel to the upside commodity funds will be presented with no reason to exit short trades. However, the fund short position, shy of a record but still sizeable, does represent potential for higher prices. Sometimes fund short covering is a ‘chicken and egg’ scenario. Does higher price action lead to funds covering short positions or do funds covering short positions lead to higher price action? The trend is still down but the technical picture shows sugar potentially bottoming, or at least setting the stage for a corrective rally. The 50-day moving average comes in at 11.66 so there is room to rally even if only correcting in a larger downtrend.  Fundamentally, sugar remains burdened by the surplus of supply, but it won’t take much more upside price action to inspire funds to cover, summer doldrums or not.  This fundamental situation vs technical picture has been a theme for a while now and hasn’t led to higher prices, yet. That could change quickly.  Aggressive traders can position for what could be a jump over the 50-day by using call options that don’t have a lot of time value and therefore cost less to own. 

Sugar Oct ‘18 Daily Chart

Sugar Oct '18 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."