This week’s comment finds the July sugar contract consolidating after a recent move to new lows. Burdensome India supplies, weakness in the Brazilian Real and according to a Hightower comment on Thursday morning, increased selling due to the move in that currency. Sugar is seeing an upswing in open interest while commodity trading funds and commercial participants are increasing the size of their respective positions. Wednesday, the July sugar contract traded above then closed below the 18-day moving average, virtually negating the influence of the sweeping outside day up/key reversal from the previous session. While this one-day reversal took place on substantial volume, almost 120 thousand contracts, the inability to close above the 18-day is a bearish signal and a hallmark of down-trending markets. Every day July sugar is unable to close above that 18-day moving average funds will be emboldened to press the short side and increase their positions. I will be watching open interest to see if the trend there continues to be up. If open interest stalls it feels to me like sugar could have a hard time extending the move lower. For now, the trend is down. 13.08 and 12.41, should the July sugar futures rally, are the levels where funds will be forced to the sidelines. While energy markets melted down this week sugar did not follow. This could be a signal that the market has digested the India supply headline and has come as far as it can for now. Treat the 18-day moving average, 11.85, as a line in the sand for risk management purposes if you are trying to press the short side. It feels like sugar could mark time in a range before heading lower.
Sugar Jul ’19 Daily Chart