Technical Analysis

Sugar in short-term consolidation

Yoganand D. | Updated on November 15, 2017 Published on January 28, 2012


In this week's Commodity Corner we decipher the two commodities — sugar and corn. The benchmark for raw sugar, the Sugar No. 11 contract fell 2.7 per cent to $24.21 in the previous week. Ever since peaking out in February 2011 at $36, the sugar contract has been on an intermediate-term downtrend. Encountering resistance at around $31 in July and August 2011, the contract resumed its downtrend. Medium-term trend is also down for the contract since then.

The contract is trading well below its 200-day moving average, which was conclusively breached last September. Further, it penetrated a significant long-term support at $25 in November last year, that later turned into significant resistance. But, the next long-term support positioned at $23 provided base for the contrast from late November to early January 2012. The key resistance at $25 arrested the contract from moving beyond it in the previous week. The contract has been on a short-term sideways consolidation phase confining in the band between $23 and $25 from late November 2011.

Short-term view

The contract is currently reversing downwards from the key resistance at $25. This decline can continue and test the lower boundary of the sideways band at $23 in the ensuing weeks. Strong weekly close below this level will pull the contract lower to $21. On the other hand, decisive jump above $25 can lift the contract northwards to $26 initially and to $27.2, which is 50 per cent fibonacci retracement level of the medium-term downtrend.

Medium-term view

An emphatic decline below the key support band between $20.5 and $21 will reinforce the intermediate-term downtrend and drag the contract down to $18. Conversely, the contract needs to rally above $28 to reverse this downtrend and push it higher to $30 and to $31.3 in the medium-term.

Corn

The corn contract bottomed out in September 2009, taking support from its long-term base level of $300. It has been on a long-term uptrend since then. Following an intermediate-term corrective downtrend from its June 2011 peak at $799, the contract found support in December 2011 at $580, which is a key base level. Triggered by positive divergence in the daily relative strength index and moving average convergence divergence indicator, the contract reversed its direction upwards. Nevertheless, the contract is facing key resistance at $660.

An emphatic breakthrough of the immediate resistance level $660 will pave way for a rally to $690 in the medium-term. Only a strong move above $690 will alter its downtrend and push the contract higher to $730. Next long-term resistances of the contract are pegged at $750 and $800, which is the long-term target.

But a strong fall below the key support level $580, can pull the contract lower to $550 and to $520 in the medium-term. A conclusive weekly close below $490 will mitigate the long-term uptrend and drag the contract down to $450 and to $400 in the long-term. The contract advanced 5 per cent in the last week to finish at $641.7. Short-term supports are positioned at $625 and $600. Resistances are at $660 and $670.

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