Sugar, Shaping Up or Walking Off a Cliff?Posted 02/28/2019 7:37AM CT |
This week’s comment finds sugar right back where we left it in our last comment. After a move below 12.50, the May contract sprung into breakout territory travelling from a low of 12.34 to a high of 13.42 in 3 trading sessions. Poised to break out above 13.50, sugar promptly failed and retreated back into the 12’s. Shortly, the COT reporting will have caught up to the market and we will have a solid understanding of the positions market participants hold. While not exactly occurring at the bottom of a downtrend, the head and shoulders pattern on the daily chart for the May sugar paints a few nice lines on the chart.
If the May sugar futures contract should manage to rally out above 13.50, a quick measurement shows 15.00 could be in the offing. A move below 12.30 will point to an equally, if not more, powerful failure of the head and shoulders pattern and possibly prices back in the 10’s. It is my opinion that the chart simply shows not only confusion left over from the government shutdown and lack of timely COT update, but a market waiting to see further confirmation of global production. If sugar production numbers confirm no surplus and even a deficit, sugar will have to find a higher equilibrium price. If, as in recent years, sugar production comes in higher than anticipated, it is likely we will see new lows for the move. I have been suggesting traders look to puts to be positioned for possible downside. The chart has now given bulls reason to act and have calls in place as well. While I still favor the downside I am trying to anticipate fundamentals. It is reasonable for bulls to do the same. It doesn’t feel like sugar is going to be trading sideways for much longer.
Sugar May ’19 Daily Chart
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