Sugar Dip

In this week’s article I am going to revisit the market action on the Sugar futures contract (SB-SpotV).

Last time I penned an article on Sugar, the market was positioned just nicely for potential support on two old major tops (Trading Tutors Newsletter #155).  At that point, if the market failed to close below the level of the old tops, then the support looked good for holding, and another rapid rise in Sugar prices was on the cards.

Well, history has proved that the tops did not hold as support. The good news is that rather than just entering long in the market on pure anticipation, the swing chart kept us safely out of the market, long. The swing chart did its job brilliantly. The swing chart in fact was giving short trade indications, definitely not long!

So, where to now for Sugar prices and the next likely support levels?

Chart 1 is the weekly chart of Sugar highlighting the major tops in 1990 and 1995 that had been providing some degree of support. As you can see, we have now pushed well below the level of the tops after having held above them for over 10-12 weeks.

Chart 1 – Sugar Weekly Bar Chart

I am still looking for more upside over the longer term on Sugar, and view this sell-off as just a retracement for now - time will tell.  The last significant low on the weekly chart, prior to the last massive rise, occurred in April 2005 (8.02). The top that ensued occurred in early February 2006 at 19.73. These two prices give us a range of 11.71 to work with going forward.

Chart 2 shows the more recent market action on the weekly bar chart for Sugar, taking into account the low in April 2005.

In Chart 2 I have also highlighted a more recent double top that occurred following the February 2006 high. We had two tops at 18.55 and 18.48 that occurred in late February and March respectively. The low between the two tops is 16.19, giving us a reference range for the double tops of approximately 2.36 (18.55 – 16.19).  We can use this knowledge to calculate the 200% Pressure Point to watch as an area of support.

Chart 2 – Sugar Weekly Bar Chart

Putting these two points of view together, you can see by studying Chart 2 closely that the 50% retracement level between the April 2005 low and the February 2006 high comes in at 13.895 and the 200% Pressure Point for the Double Tops comes in around 13.76.  There is also an old weekly swing low at 14.00 cents per pound neat. All 3 key numbers give us an excellent ‘cluster’ and therefore a region of price to watch closely for support.

I definitely have some dates in mind to go along with this price forecast, so its all systems go for watching the set-up.  If the market does find support around this level, we should see a great initial bounce and a small ensuing retracement to give us a trade. I hope that many of you out there are battling through the excuses and getting yourself ready to trade futures and Sugar futures at this time in particular.

Until next time...

Noel Campbell