Sugar Still Looks Very Attractive

Before I start this post, I would just like to mention that I have received a few questions regarding the previous post about Gold's trading range. Instead of answering each email, what I will do is put forward another update tomorrow as requested and explain things a little bit further, as some seem confused with my last post. Furthermore, as already mentioned, blog posts will now be a lot more frequent. Enjoy!

Chart 1: Sugar continues to be an awful performer


The price of Sugar continues to linger in the doldrums of a cyclical bear market. Looking at the table above, we can see that many commodities remain awful performers. Be it industrial commodities like Crude or Copper, or the Precious Metals like Gold and Silver, it is evident that commodities have suffered in recent years and those invested in them have not benefited... yet (by this I mean me). Sugar remains one of the worst performers out of all commodities, only outdone by its Soft commodity cousins Coffee and Orange Juice (which also remain depressed too).

Chart 2: Depressed performance signals major low is at hand


If we look at the data a little bit further than just a 12 month span, we can notice that Sugar has actually been depressed for even longer. The current underperformance resembles that of 1998 and 2001, which were two major lows for not only Sugar, but the whole CRB Index. If the technical readings above are anything to go by, we are edging ever closer to a major low in Sugar prices and a beginning of a new cyclical bull market (and quite possibly this could be true for the overall CRB too).

The first thing we will hear from the bears is the fact that the Sugar supply remains in a huge glut. I agree - of course it does, otherwise the price would not have corrected 50% from 36 cents in February 2011 towards 18 cents today. In other words, Sugar prices have already gone through a 2 year cyclical bear market and have essentially halved in value. One thing I have noticed recently is that the oversupply of Sugar is starting to slowly but surely dwindle. China has started importing large amounts in recent months and the price definitely shows reluctance to sell off sharply despite all these "unfavourable conditions".

Chart 3: Technically, Sugar looks ready for a big move!


Looking at the chart above, we can see the full price action of the two year old cyclical bear market in Sugar. Having peaked in early February 2011 around 36 cents, Sugar sold off rapidly into May 2011 low at 20 cents. After a bear market rally peaked around 32 cents (which I participated in), Sugar has cascaded lower and lower in price for quarters on end. The prices first broke 20 cent support in June of last year and since then have failed to stage any meaningful type of a rebound whatsoever.

Chart 4: Sentiment remains at depressed levels




The current price action looks, feels and acts like one of despair, where bulls have completely and utterly given up. Sentiment indicators confirm this, but in all honesty, did anyone expect otherwise after a 2 year slump and a 50% sell off? Hedge funds have reduced net long positions to some of the lowest levels in over 5 years, while Public Opinion has dropped to levels that are usually associated with intermediate lows. A buying opportunity could be close at hand.

Chart 6: Price has spent a prolonged period below 200 MA


Furthermore, the chart above shows that prolonged periods of time where the price trades below the 200 day moving average, usually signals that a major bull market rally is around the corner. Sometime this prolonged period takes 12 months or so, and sometimes it can be 24 months or longer. The important point is that the longer prices remain depressed the stronger the bull market will be on the other side of it. The current depressed period is the second longest in almost two decades and in my view promises a spectacular rally in the coming quarters and/or years to come.

What I Am Watching