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