Fundamentals
Sugar futures have been one of the best markets for trend following traders this year, as prices have been in a sustained up-move since February. This performance has garnered the attention of large speculative traders who have amassed a huge net-long position in the Sugar market while adding to positions as prices move higher. While these systematic traders rarely look at a market?s fundamentals to base their trading decisions, those of us who like to know the supply and demand picture of the markets may see some potential headwinds for the bullish trend coming out of Brazil, where the 2016-17 season?s production is forecast to be 6.5 million metric tons higher than last season?s output.
India is expected to see adequate monsoon rains this season, which if accurate should allow production to come in close to the 23 million metric tons analysts are forecasting. The only major fundamental factor supporting Sugar?s futures price is the expected supply deficit this season, which is due to robust demand and disappointing production the previous year. While some traders do not see the deficit disappearing, despite large production totals this year, current cash prices may encourage producers to increase production, which could be the ultimate factor that ends the current bull market run. ?
Technical Notes – View Today’s Chart
Looking at the daily chart for October Sugar futures, we notice what has the potential to be a double-top formation. This generally bearish technical pattern would need to be confirmed by the market closing below chart support seen at the July 29 low at 18.71, preferably on higher than average trading volume. This pattern would be invalidated on a close above the most recent high made back on June 30 at 21.22. Prices remain above both the 20- and 200-day moving averages, but momentum as measured by the 14-day Relative Strength Index (RSI) has started to move lower and is back in neutral territory with a current reading of 57.22. Near-term support is seen at 19.50, with near-term resistance found at 20.94.
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