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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Tags: $KC_F $JO