Harvest Delays Could Sweeten Sugar
The Pattern, Price & Time Report | Oct 03, 2012 11:25AM ET
In Mid-September the March Sugar (SBH13) futures contract showed a sign of strength when it threatened to breakout over the September 19 top at 20.98. The move only took the market to 21.00 where it failed to run stops or attract any fresh buying. A downtrending Gann angle at 20.98 also provided solid resistance.
Failure To Break
The inability to breakout to the upside turned control back over to the bears that proceeded to drive the market back to 19.65. This move proved to be a successful test of the September 6 bottom at 19.48 as it triggered a rebound rally that eventually crossed over to the bullish side of the downtrending Gann angle.
With a double-bottom developing and March Sugar crossing to the bullish side of the angle, traders should look for a possible breakout to the upside through the last main top at 21.00. A trade through this level will not only confirm the double-bottom at 19.48 and 19.65, but it will also change the main trend to up on the daily chart.
Objective One
Based on the main range of 24.10 to 19.48, the first objective is the retracement zone at 21.79 to 22.33. Analyzing the double-bottom chart pattern, the objective is much higher. Taking the distance between 19.48 and 21.00 and adding it to 21.00 yields a target price of 22.52.
Because of the clear path to the first objective once the top is taken out, traders could be looking at a fast payoff since there is nothing in the way to stop the rally.
The weekly chart shows that March Sugar found support after completing a 50% retracement of the contract range of 14.70 to 25.39. This price was 20.03. The market stopped going down at 19.48, slightly above the Fibonacci price level at 18.77. A test of this retracement area also put sugar in a value-zone.
Tight Global Supply
The daily chart pattern suggests that accumulation is taking place. This ties in nicely with the fundamental assessment that global supplies are beginning to tighten. Shrewd traders may have noticed the large delivery of sugar on Friday when the October contract went off the board. More than 11,000 contracts of sugar were delivered. Speculators then concluded that Brazil may be having trouble with supply.
Seasonal rains may wreak havoc on the harvest. This will become an issue since unseasonable rains in May and June delayed the harvest at that time. Traders are concerned that Brazil will have a shortfall since much of the early delay was never recovered.
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