This post is a follow up from our June 23rd post, Sugar Futures – Tuesday Technicals.
Sugar Futures Looking Sweet
Sugar remains in the early stages of a longer term uptrend and price pullbacks should be considered buying opportunities. Buyers that lack current coverage should be aggressive in extending coverage to take upside risk off the table.
Below is a daily chart with our current wave count. We expect the market to move higher in wave 5 of 1. This may set the table for a 50-62% retracement in wave 2 back near 11.00-11.50 sometime this fall. That will act as a spring board for a much larger rally in wave 3, targeting north of 20.00 (see weekly chart). Critical support is well defined for this interpretation at 11.00. Wave 5 of 1 should play out before prices potentially move below that level in wave 2.
Below shows the substructure of the wave count on the hourly chart. In our previous post, we suggest that wave 4 may play out as a triangle (because wave 2 was a sharp correction and that could be expected). With Wave C moving beyond wave A, it is much more probable that this pattern is a wave 4 flat. It could still be a triangle (expanded variety); however, that would be less probable and therefore not the primary wave count. if prices take out the wave B high and move quickly lower, the expanding triangle interpretation would become more probable, and the primary wave count. Regardless of whether wave 4 is complete or prices are still within the expanding triangle wave 4, it is still a corrective pattern and more new highs are expected.
The weekly chart below gives the longer-term perspective and illustrates the current value the market is offering. Note: for buyers that are currently short in their needs, it is advised that you cover enough of you needs now to avoid a disaster if the market takes off running. You don’t have the luxury of waiting of the pullbacks. This is because once a trend has turned, you want to be on its side (moves can be more violent and sudden than expected).
The relative strength Index spent 2-3 weeks above the 60 level, signaling a completion of the previous down trend that bottomed in late late-April. The next step in this analysis is to watch the 40-level hold on pullbacks. That adds confidence to buying dips and joining the uptrend. The last dip in price was accompanied by an RSI reading of 47. This adds confidence to a bullish outlook.
Looking at the multiple moving averages page, we see the long-term moving averages are sloped higher (longer term trend is up). The gap between the short and long term averages has closed, often signaling an opportunity to join the longer term uptrend after a pullback or correction.
A note of caution is that because Sugar is an energy source (sugar ethanol); it is often highly correlated with Crude Oil, especially on the price declines. The chart below is a daily version of the most active continuous contracts for both Sugar and Crude Oil. You can see when Crude Oil starts its major declines, Sugar can be slow to follow, but eventually capitulates. If we get a 50-62% retracement of the Crude Oil rally, or we get a retesting of the lows due to COVID demand destruction and government lock downs, that will certainly act as a negative force on Sugar futures.