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Sugar Volatility Event on the Horizon?

Posted 12/13/2018 8:10AM CT | Joe Nikruto

This week’s comment finds March sugar futures moving aggressively sideways.  After a spike higher at the end of last month it appeared that March sugar was ready to break out to the upside. Wire services have been replete with bullish supply guesstimates from every bank, industry association and farmers co-op even remotely involved with sugar. Outside markets have stabilized somewhat. March sugar, resting just below the 50-day moving average and laying on the shorter term 10 and 18-day averages, could be rolling over. In a market moving sideways, like sugar has been, it only takes a day or two worth of price action to change the technical picture.

If you subscribe to the fundamental narrative, sugar is just marking time until it’s off to the races with an upside breakout but, every day that sugar doesn’t break out, and the technical price action does not support the fundamental view, the March sugar futures contract gets heavier. Funds are mildly short, a little more than 50k contracts.  The market is not technically positioned for funds to be short. In effect they appear to be early to the short side. Price action below 12.16 would warrant entry on the short side but the market has yet to trade below that level in November and December.  It could well be that the managed money community is making bets on sugar basis the weakness in Crude and RBOB. This puts sugar in an interesting position as we work through the Holiday Season.

 If March sugar trades over 13.20 it could be that these recent short bets are underwater and may be forced to capitulate. This buying back of short trades could help fuel a move to the upside, exacerbated by Holiday trading conditions. Same goes for a move below 12.10. Commodity trading funds currently on the sidelines will be entering new short positions and funds already short will add to positions. In what most would consider, at least for now, a sleepy market, options traders not in a cookie induced coma may be able to find opportunity with a rather reasonable amount of risk.

Sugar Mar ’19 Daily Chart

Sugar Mar '19 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."