Sugar reversal

Pavel Hála | Trading ideas | 25. 2. 2013

Sugar has been in downtrend for quite a time. I think this is about to change. This is daily OHLC chart from spreadcharts.com:

sbk13_price

Yep, no sign of turnaround. So why I think it may happen? Because of internal structure of market, i.e. distribution of futures positions between particular market participants. Simply said I’m talking about Commitment of Traders (COT). Next study shows COT absolute positions chart:

sbk13_cot

Lets explain it little bit. Red line is composed from net positions (long – short) of producers, mercs, processors. These people are hedgers, they come to market to hedge their risk, not to specuate. On the other hand, green line represents positions of money managers, i.e. large speculators. Both of these groups have large influence on the market. Look at managed money only:

sbk13_mony

It has positive correlation with price. And it recently turned negative which is very unusual in sugar market. And very bullish.

Even more important group is producers etc. To make it even more obvious I highlighted certain point in this spreadcharts.com study:

sbk13_prod

Remember these people are hedgers. Therefore the position curve has inverse correlation with the price. I marked turnaround points. It’s interesting that those turnaround in hedgers positions trend (and therefore price) happens near the same level which is -150k. And this is the level we are approaching now. And I think that’s exactly the reason why we will see a reversal from current downtrend.

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