Give Me Some Sugar, I Am Your Neighbor
- Posted by JC Parets
- on February 26th, 2014
Sticking with our commodities theme for 2014, I think Sugar is setting up in a really interesting way. Over the past few months I’ve been focused on the price action in Coffee, Corn, Natural Gas, Crude Oil, Precious Metals and the overall equal-weight commodities index (feel free to click on those links to see what I was thinking at the time). But today I want to focus our attention on the price of Sugar, because the setup is right up my alley. Let me tell you why….
Here is a weekly chart of Sugar futures going back to the 2010 rally. We can see a nice falling wedge well-defined by these two converging downtrend lines:
The next chart shows weekly bars briefly breaking down below the July lows followed by a quick reversal to the upside. Also notice prices breaking out above the 40-week moving average this week:
As the old saying goes, from false moves come fast moves in the opposite direction. So was that false breakdown the necessary catalyst to finally get Sugar going to the upside?
I think the shorter-term daily candlestick chart helps put this into context. I added a 14-period relative strength index to show the bullish divergence at these most recent lows last month:
We’ve seen a nice move here in February. Sugar is up 18% from the late January lows. But I believe that the force behind this thrust is indicative of demand outweighing supply. As long as prices remain above those July lows (and December lows), Sugar is a buy on any weakness. Our initial target is $20, but based on this 3-year decline, there is probably a lot more upside than that.
Commodities have been the big story so far in 2014. I think this trend continues and Sugar participates. We’ll see how this reacts if/when it approaches 20. From a longer-term perspective, an eventual breakout above those levels would confirm a more cyclical shift in trend. But we’ll worry about that when the time comes.
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J.C. Parets is the Founder & President of Eagle Bay Capital, LLC. He earned the Chartered Market Technician designation (CMT) in 2008 and now actively manages money incorporating Technical Analysis and Behavioral Finance into his practice More
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