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Softs

Sugar, Shaping Up or Walking Off a Cliff?

Posted 02/28/2019 7:37AM CT | Joe Nikruto

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

Sugar May '19 Daily ChartIf you would like to learn more about soft futures, please check out our free Fundamental of Softs Futures Guide.

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Joe Nikruto

Senior Market Strategist
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."
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