NY Sugar N.11 - Soft commodity reflation trade

[Mercury]

I have been tracking a few soft commodities to see if there is anything to this idea of a reflation (wider economy inflation) across all commodities.  The idea is that the Fed policy will eventually produce the much sought (by the Central Banks at least) inflation but that the Fed will not be able to control it so we will get runaway inflation that will be led by commodity prices.  This has proven correct on Coffee so far...

Sugar is a contrarian play as the received wisdom is "sugar bad!".  However, as has been suggested by @TrendFollower I think, there seems to be an under supply at present as producers exit the market.  Again similar to coffee but for different reasons: for sugar is seems to be a consumer health driven issue but for Coffee it is good old fashioned supply/demand.

On the Technicals front the situation is similar between Coffee and Sugar on the charts with a wide price range and the markets completing a touchdown at or near the bottom in an A-B-C wave form, suggesting the next move will be up and will go higher than the recent highs, it certainly has been on Coffee!  Note this is also similar on Gold...

• The recent move down looks like and A-B-C with strong PMD at the recent turn (monthly chart).  Wave C concluded on the Fib 76%, not marked on chart
• On the weekly we can see a possible 1-2 (pink) rally and retrace within a channel that was then broken and failed a retest before rallying further in a series of 1-2 waves
• Zooming in on the daily we can see a V-Bottom at wave 2 (pink) and then the 1-2 (blue) produced a double bottom with PMD at wave 2 (blue).
• There is an ice line across the top of the V-Bottom that coincides with the next 1-2 (green) and is a strong area of resistance (now support after the breakout).
• We now appear to have a 1-5 up to wave 1 (brown) and a short wave 2, which has just broken higher as I am writing this...

There is still a possibility that we see a retest of the ice line (crica 1290) but if the break of 1380 is confirmed then this is, for me, a bullish sign.  A next resistance level break would seal it for me.  If this is a turn bullish then this trend could run for some time and many points.

[Mercury]

Break higher occurred right on cue.  Certainly looks bullish on the weekly chart but need to guard against a potential reversal at the next resistance point, which could produce a retrace (counter trend) back to that ice line (1290).  A firm break higher would be a strong support for a long term rally from here.

[Mercury]

Price has poked into the previous high (pink 1) resistance zone, which could spell a big breakout.  Risk is a pull back before that but for me the chances of a retest of the ice line (see previous post) are reduced as a result of the break above 1380.  Sugar is getting interesting now...

[Mercury]

May be seeing a short term retest and rally at the breakout zone on NY Sugar.  If we do get a higher high then the next target resistance would seem to be around the 1540 area and a break out through this puts the market into clear air for a long term rally IMO.  Short term retrace bearish moves still a concern until the breakout but the signs are good and the chances grow with each resistance broken, given the bullish set up outlined in the opening post.

[dmedin]

Looks promising

[Mercury]

NY Sugar looks like it is breaking out of a so-called inside bar price action configuration.  This is where subsequent candles are contained within the range of the first candle in the series.  It is simply a way to visualise consolidation that is not a retrace but part of an ongoing trend.  If the price breaks out in the direction of the major trend then trade with it.  If it breaks below then reassess if it doesn't fit your route map.  There is a catch, as always, you can get a fakeout that reverses so close stops required but in the main this is signalling a continuation of the rally that my route map supports.

[CharlotteIG]

1 hour ago, Mercury said:

NY Sugar looks like it is breaking out of a so-called inside bar price action configuration.  This is where subsequent candles are contained within the range of the first candle in the series.  It is simply a way to visualise consolidation that is not a retrace but part of an ongoing trend.  If the price breaks out in the direction of the major trend then trade with it.  If it breaks below then reassess if it doesn't fit your route map.  There is a catch, as always, you can get a fakeout that reverses so close stops required but in the main this is signalling a continuation of the rally that my route map supports.

You can see that for the week it's 4th in this weeks relative performance. 

Chart from https://www.finviz.com/futures_performance.ashx?v=12

[Mercury]

Nice chart @CharlotteIG, is this something IG publishes and how often is it updated?  If we have access can you point me to where on the site it is?

[CharlotteIG]

2 minutes ago, Mercury said:

Nice chart @CharlotteIG, is this something IG publishes and how often is it updated?  If we have access can you point me to where on the site it is?

I've just added in the link for you

[Mercury]

Fakeout (or inside bar breakdown) suggests the rally is done for the moment and we ought now to see a bearish retrace in an A-B-C structure to key support.

[Mercury]

Chance of a retest of the 1380 breakout level in an A-B-C retrace move.

[dmedin]

Still looks bullish, but isn't it going to go the way of tobacco and oil and fossil fuels?  Millennial do not want unhealthy sugar

[Mercury]

23 hours ago, dmedin said:

illennial do not want unhealthy sugar

In fact it is the older generations that are giving up sugar as science realises what Sci Fi comic book writers of 2000AD knew back in the 70s, that it is sugar not fat that kills your heart.  Of course that was in an age when people took 2 spoons of sugar with their tea...  But try to bake a cake or a cookie without sugar!  🤢

15 hours ago, TrendFollower said:

There are now other substitutes which are being used for sweetness in foods and drinks. These are more healthier

I assume you do not have any qualification in food science nor medicine?

"Most health authorities consider saccharin to be safe for human consumption. That said, there is still some skepticism about their potentially negative effects on human health. A recent study found that using saccharin, sucralose, and aspartame may disrupt the balance of bacteria in the gut."

There have been health scares with saccharin in the past, none proven but that doesn't mean it will not be in the future.  Personally I pref a natural produce (raw cane sugar typically) than a chemical but then again I use very little sugar these days.  And the chemical alternatives taste like $h1t!  I'd rather just give up cola, which I did and feel a lot better for it!

From a trading perspective the issue is that as a result of the negativity towards sugar, which has drive changes in consumer habits, the demand for sugar reduced and supply followed but too far, hence the potential for a bull market.  Simple S/D equation.

[Mercury]

The thing with these kinds of reports @TrendFollower is that they are based on statistical studies.  Advice changes over time.  When I was growing up there was no talk of cholesterol and then it was the scourge of the world and now it isn't so much it is sugar that is the killer.  My point was that no one can rely on this kind of evidence and I would not bet my health on such studies.  Therefore it is better to NOT use artificial sweeteners at all , just give up sugar.  Also sugar is a problem only if taken in excess (like most colas for instance...).  A modicum of sugar in your diet is not a bad thing and as it releases energy into the body it is actual food where as artificial sweeteners are, well just a drug!  I know doctors who will say privately that "a little bit of what you fancy" is a good thing because of the body and brain chemistry results it produces, not to mention good mental health (what would we all be like if we lived like ascetic I wonder..?).  This is why a balanced diet (not necessarily a health crazed one) and regular exercise are still the sane way to a health life.  Therefore I take issue with the notion that a chemical substitute for a natural produce is "healthier".  It just isn't and time and again this is proven and proven over again in the long run.  Just look at the Fats debate.  Now fat is not bad for you, just excessive amounts.  My relatives all ate fat and sugar in their diets and most of them died in their 80/90 and some are sill going...

So that is a fundamentals backdrop to my conviction that the sugar industry is not about to die, it is just adjusting to the new reality of lower consumption per capita (note there can be growth with population growth...).  Ont he back of this I think there has been an over correction in supply, which appears to be causing a supply issue.  So net I think we will see a sugar bull run until that supply issue is resolved and sugar as an industry is here to stay so no existential issues.  Within that backdrop I can let the technicals guide me to a decent trade if that is where I want to be.

 

 

[dmedin]

1 hour ago, Mercury said:

I know doctors who will say privately that "a little bit of what you fancy" is a good thing because of the body and brain chemistry results it produces, not to mention good mental health

Hahaha indeed 😻

[Mercury]

Sugar seems to be on the rise again.  There are at least a couple of scenarios in play:

1. With the breakout of the Triangle consolidation and Ice line the market is now in a strong bull phase with a series of 1-2s that should push through the next resistance level (1550) and on up
2. The current rally is still to top out (maybe at 1550) and then a strong retrace 1-2 to set up the next rally phase.

Let's see...

[dmedin]

Producers are hedging against price rises, usually a good sign that price is expected to keep rising?

[dmedin]

Where next for the sweet goodness?

[Mercury]

Something like this perhaps.

[Mercury]

So far so good!

[dmedin]

Wave three back down about to commence whoop whoop?

[Mercury]

21 minutes ago, dmedin said:

Wave three back down about to commence whoop whoop?

I have it as a wave C but OK.  There is certainty a chance but price needs to get below 1500 pretty sharpish.

[Mercury]

Also should say that while USD is so strong a short term bearish impact on commodities may result.

[Mercury]

Not sure whether NY sugar has turned yet or not  we could see another higher high test on the key resistance zone before any retrace but if price turns lower before then the retrace to at least the 1380 level is on.  The more interesting opportunity here is getting Long after any bearish dip.

[dmedin]

Sugar is still looking sweet

[Mercury]

On 23/02/2020 at 09:17, dmedin said:

Sugar is still looking sweet

Hmm, still sweet?

[Mercury]

Sugar has arrived at the Ice line support zone my technical analysis projected (and they say TA doesn't work...  Well well there have always been flat earthers!).  What next?  Naturally either price bounces back off this zone and into a long term rally or it breaks back below it.  I haven't a clue which TBH.  My current line of thinking suggests a bounce but the price action on the weekly and monthly charts is strongly bearish and I can see the market heading below 1000 before the reflation trade as seems to be the case with many soft commodities at present.

 

[Caseynotes]

15 hours ago, Mercury said:

(and they say TA doesn't work...  Well well there have always been flat earthers!)

hahaha, look @dmedin, mercury is calling you a 'flat earther'   🤣🤣🤣