Sugar High?

Noel Campbell

It’s no secret to an established Trading Tutors Newsletter reader that I’ve been watching for a big rally in the price of Sugar. We aren’t talking about your normal kind of rally here either - big on a big scale. The main basis of this expectation is using the major cycle period of 30 years or 360 months. The price of sugar exploded in 1974 and if history is to repeat as it did in the Soybeans market, then another explosion is on the cards.

The 30-year cycle had 2004 as the year marked to watch for the rally. That’s great I hear you say, it’s now 2005! Well here’s the thing: Soybeans were earmarked for a big spike rally in 2003 based on 30-year cycles. The rally in the price of Soybeans came as expected, with prices going through the roof, but it didn’t happened until 2004. When dealing with cycles this large we can afford to increase our margin of tolerance when timing the cycles. The big question is when will the rally start?

In Chart 1 we have the daily bar chart action for the continuous Sugar contract chart – SB-SpotV, starting from late 1997. Sugar has been tracking essentially sideways for quite a number of years now, typical of a commodity before a massive rally. The swings in Chart 1 look quite wide, but if you compress the view and study say 30 years of market action you will see just how narrow this channel is on the bigger picture.

click chart for more detail

The first thing to point out is the rising level of support across the major lows. This is one telltale sign that there is some strong support around and the pressure is building. I have labelled two of the more recent significant highs, 1 and 2. When the contract first powered back up to form top 2, we were looking at the potential for a Double Top. What was going to be a key indication as to whether this market had some real underlying strength was how it handled the resistance of the old high. To see a small sell off was going to be no surprise. The market initially sold off quite heavily from the Double Top. But one thing to notice is that since that first low made after top 2, the contract has been again making higher bottoms and it looks like the bulls are still quietly dictating play.

Once the contract gets through tops 1 and 2 and manages to hold consecutive weekly ‘closes’ above these old tops then it could be up, up and away. I’ve been stalking sugar for quite a few months now and it seems like we are getting to the real business end of the hunt.

Until next week......

Noel Campbell