Market Strategy

Sugar in short-term uptrend

Yoganand D | Updated on July 14, 2012 Published on July 14, 2012


The Sugar No 11 contract, that is the benchmark contract for raw sugar futures, rose 2.2 per cent to 22.73 cents a pound lat week. On July 10, raw sugar had touched a near three-month high of 23.05 cents. From the year-to-date low of 18.86 cents registered on June 4, sugar has advanced 20.5 per cent so far. It is now just 2.5 per cent below the price from the beginning of the year.

Sugar’s turnaround has been fast due to unfavourable weather conditions in Brazil and India, the top two producers of sugar and major exporters. According to the US Department of Agriculture, sugar production in Brazil declined to a three-year low of 36.2 million tonnes (mt) in the 12-months ending April 2012.

Long-term uptrend

Sugar 11 contact has been on a long-term uptrend ever since bottoming out in early 2004 at a low of 5.27 cents. As long as the commodity trades above the crucial long-term trend deciding level at 17 cents, its primary trend remains up.

It has key resistance in the band between 26 and 27 cents. An emphatic rally above this band will take sugar higher to 32 cents and then to 34 cents in the long-term horizon. Inability to rally above the aforesaid band will confine the commodity to trading between a wider range — between 19 and 27 cents.

On the other hand, sugar has significant long-term support in the zone 19 and 20.5 cents. Fall below this level can pull the commodity down to its support level of 17 cents. A tumble below 17 cents will mitigate the uptrend and drag the commodity down to 15 or 14 cents in the long-term.

Medium-term view

Ever since peaking out in February 2011 at 36 cents, sugar has been on an intermediate-term downtrend. In April 2012, it plunged below an important support at 23 cents. It further dipped below its next key support level at 20.5 cents in May 2012.

However, the commodity took support at around 19 cents in early June and reversed direction. This reversal was triggered by positive divergence in daily relative strength, moving average convergence divergence and price rate of change indicators. Currently, these indicators are hovering in the positive territory, signalling upward momentum. Since then, sugar has been on a short-term uptrend. Surpassing the 21 and 50-day moving averages, the commodity is hovering well above them.

Nevertheless, sugar is currently testing a significant resistance at 23 cents. The zone between 23 and 24 cents has multiple key hurdles as the 200-day moving average is positioned in middle of this range. A decisive breakthrough above this zone will take the commodity higher to 26 cents in the medium-term. Subsequent key resistances are at 27 cents and 29 cents which is the trend deciding level.

Jump above 29 cents will alter the downtrend and take the commodity northwards to 32 cents. Failure to rally above 24 cents will result in short-term corrective decline or sideways movement. But tumble below 20.5 cents will pull the commodity down to 19 cents in the medium-term. Next key support is at 17 cents.

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