Sugar: A Bull Market Or Bull Trap?
Today’s Spotlight Market
Large and small traders have a mixed opinion on the direction for Sugar prices, although neither side is placing much stock in their opinions. The most recent Commitment of Traders report shows non-commercial traders holding a relatively small net-long position of 12,372 contracts as of October 14th. For comparison, during the last bull market in Sugar, these large speculators would hold net-long positions of over 200,000 contracts!? Non-reportable traders, which are normally made up of small speculative accounts, are holding a net-short position of 8,769 contracts. Commercial traders are modesty net-short in Sugar futures, but have been slowly reducing the size of their position of late.
Fundamentals
The recent bearish trend for Sugar prices appears to have stalled, as prices have consolidated well off recent lows. There are concerns among analysts that the global Sugar surplus will decline sharply or may even fall to a supply deficit in the upcoming season.?? This has trend following traders covering short positions that were established during the past several years of a supply glut. Lower Sugar production totals are expected out of India and Thailand next year, and dry conditions in Brazil earlier this year may reduce the output for the 2015-16 Sugar Cane crop. While the longer-term outlook for Sugar prices appears to favor the bulls, any near-term rallies may face some headwinds from lower Crude Oil prices.? This may encourage Brazilian producers to steer additional Cane production towards food usage as opposed to fuel.? Additionally, a weakening Brazilian currency encourages producers to sell their Sugar in the export market, as they will receive more reals when converting foreign currency received from their overseas sales. ?
Technical Notes? -? View Today’s Chart
Looking at the daily chart for March Sugar, we notice the downtrend line drawn from the late June highs has been taken out following the upside price ?gap? made on October 6th. Prices are now trading above the 20-day moving average, and the 14-day RSI has moved into neutral territory, with a current reading of 44.74.? While we see the start of an uptrend being formed since recent lows were made back in late September, it is notable that trading volume has been declining as prices move higher. This could be a sign that the recent rally was primarily attributable to short-covering buying and not the establishment of new long positions. Near-term resistance is seen at the October 9th high of 17.20, with near-term support found at the October 16th low of 16.28.
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