Fundamentals, Trader Positioning & Activity, and Technicals should all be in consensus before entering a trade. Sugar currently checks off 2 of the 3.
1) The Disinflationary theme that has been dominant in trader’s psyche towards commodities is poised for at minimum a reactive bounce. The PBOC has been pumping liquidity this month and traders have been reacting by bidding up base metals. Oil has stopped falling, and is showing signs that a retrace is underway on the 60min charts. Coffee made a V reversal on Friday, immediately reversing the 7cent drop from the prior day. So we are starting to see bears taking some profits while bulls are accumulating on weakness.
2) While the Global supply picture is bearish with expected record levels of production, we are on the flip side seeing very high demand. China imports of sugar are up over 30% year over year! So what we have is a case of Massive Demand as well as Massive Supply. Any hic-cup on the supply side and you have the potential for violent over-sold bounce.
3) Trader Positioning is currently at extremes across the “Softs” complex. . I rank the COT participants Positioning and Weekly activity on a 18m and 5yr basis factoring in a volatility component along with their activity. The Net commercial position is Sugar scores a 100% on an 18m + 5yr basis. Coffee is at 100% as well, and cocoa is at 97%. What this tells you is that Commercial Traders are now buyers on every single dip. They are buying value.
Conversely, Leveraged Traders and Hedge Funds score 0% on their net position. They are trend followers by nature so they are piling on shorts as price continues to fall. Amazingly, the funds continue to pile on shorts here at record levels. The week of 6/13-6/20 (Tues – Tues for COT reports) saw Funds go net short 41k contracts on a price dip of only -.18! This weekly change in position scored a 7% on a 5yr basis. This means over the past 260 weeks, only 19 have seen bigger Weekly selling by Funds – And this is happening after a 43% drop?
So Commercial Producers and Consumers of Sugar are buying at record levels, while reducing short hedges at record levels. Technical Funds Continue to pile on shorts at record levels.
4) Speaking strictly From a statistical basis – This Wave 3 or (corrective C if you prefer) drop over the last 19 weeks of 8.7 cents is in the 4th percentile of all price moves in Sugar going back to 1962! So this wave lower is at a Historical Extreme. Further, Sugar has now recorded losing months in 8 of the last 9 months. This has happened only 1 other time during the last 30 years! This is a extreme washout by any statistical measurement.
Traders should be looking to position for at minimum a retrace of this historical Wave 3 drop. A 23% Fib retrace will net you 2cents, while a 38% Fib retrace will net you over 3 cents. This is a 13-23% move. Overnight margin is 2,800 so this would be a 60-100% gain on margin. How to Trade it:
1) The setup is in place – Now we need a green light to go. Wait for your favorite short term trend indicator to turn “Neutral” or “Up” from it’s current position which will no doubt be Down. When it does, buy 2 Calls 1 cent out of the money, and sell 1 put 1 cent out of the money to help finance the trade.
We have to wait for Monday Morning to see option prices on ICE, so I will update the Trade economics then.
2) As this is a Trading site, most people will hate this next approach, but I have to list it anyway. Sugar is on Sale. It is a Valuable asset that is experiencing record demand. Like any other asset on sale, you buy it and hold it – You don’t have to trade it. Accumulate it.
So buy 1 unit here with no stop. If it continues to fall you add 1 unit every 25% down.
Sugar is not going to zero – It’s not going off the board. The average annual Traded Low for sugar from 1970- today is $8.80, although we haven’t been in single digits since 2007. So start accumulating here,
Good Trading to All.
1) The Disinflationary theme that has been dominant in trader’s psyche towards commodities is poised for at minimum a reactive bounce. The PBOC has been pumping liquidity this month and traders have been reacting by bidding up base metals. Oil has stopped falling, and is showing signs that a retrace is underway on the 60min charts. Coffee made a V reversal on Friday, immediately reversing the 7cent drop from the prior day. So we are starting to see bears taking some profits while bulls are accumulating on weakness.
2) While the Global supply picture is bearish with expected record levels of production, we are on the flip side seeing very high demand. China imports of sugar are up over 30% year over year! So what we have is a case of Massive Demand as well as Massive Supply. Any hic-cup on the supply side and you have the potential for violent over-sold bounce.
3) Trader Positioning is currently at extremes across the “Softs” complex. . I rank the COT participants Positioning and Weekly activity on a 18m and 5yr basis factoring in a volatility component along with their activity. The Net commercial position is Sugar scores a 100% on an 18m + 5yr basis. Coffee is at 100% as well, and cocoa is at 97%. What this tells you is that Commercial Traders are now buyers on every single dip. They are buying value.
Conversely, Leveraged Traders and Hedge Funds score 0% on their net position. They are trend followers by nature so they are piling on shorts as price continues to fall. Amazingly, the funds continue to pile on shorts here at record levels. The week of 6/13-6/20 (Tues – Tues for COT reports) saw Funds go net short 41k contracts on a price dip of only -.18! This weekly change in position scored a 7% on a 5yr basis. This means over the past 260 weeks, only 19 have seen bigger Weekly selling by Funds – And this is happening after a 43% drop?
So Commercial Producers and Consumers of Sugar are buying at record levels, while reducing short hedges at record levels. Technical Funds Continue to pile on shorts at record levels.
4) Speaking strictly From a statistical basis – This Wave 3 or (corrective C if you prefer) drop over the last 19 weeks of 8.7 cents is in the 4th percentile of all price moves in Sugar going back to 1962! So this wave lower is at a Historical Extreme. Further, Sugar has now recorded losing months in 8 of the last 9 months. This has happened only 1 other time during the last 30 years! This is a extreme washout by any statistical measurement.
Traders should be looking to position for at minimum a retrace of this historical Wave 3 drop. A 23% Fib retrace will net you 2cents, while a 38% Fib retrace will net you over 3 cents. This is a 13-23% move. Overnight margin is 2,800 so this would be a 60-100% gain on margin. How to Trade it:
1) The setup is in place – Now we need a green light to go. Wait for your favorite short term trend indicator to turn “Neutral” or “Up” from it’s current position which will no doubt be Down. When it does, buy 2 Calls 1 cent out of the money, and sell 1 put 1 cent out of the money to help finance the trade.
We have to wait for Monday Morning to see option prices on ICE, so I will update the Trade economics then.
2) As this is a Trading site, most people will hate this next approach, but I have to list it anyway. Sugar is on Sale. It is a Valuable asset that is experiencing record demand. Like any other asset on sale, you buy it and hold it – You don’t have to trade it. Accumulate it.
So buy 1 unit here with no stop. If it continues to fall you add 1 unit every 25% down.
Sugar is not going to zero – It’s not going off the board. The average annual Traded Low for sugar from 1970- today is $8.80, although we haven’t been in single digits since 2007. So start accumulating here,
Good Trading to All.
Comment:
Sugar is panting a Inside Day or Harami Cross on the daily chart - This indicates a reversal is imminent.
We will go Long on a Break above 13 cents. Stop out on a hourly close below 12cents.
Target is Minimum 15cents for a 2-1 R/R
Thanks
We will go Long on a Break above 13 cents. Stop out on a hourly close below 12cents.
Target is Minimum 15cents for a 2-1 R/R
Thanks
We are waiting for a close above our 4day custom channel - Once this triggers we will update this trade with all of the trade economics.
For the Long Term Positions held with no stops we are Adding 1 Unit today of Oct Sugar at 12.91 cents. We will add an additional 2 units if prices fall 20% from todays level. Remember, this is not a trading position, but rather a Buy & Hold.. Everything is in place for a Monster rally in Sugar, EXCEPT for the price action, We are willing to buy & wait through the drawdown in our Long Term book.
Thanks & Good trading to all.