How Sweet It Is
Sugar – The Sugar market is sharply higher this morning, aided by stronger energy prices. The relatively low price of the sweetener compared to other commodities – such as grains and metals – has attracted investors in recent weeks. Brazil is expected to curb exports of Sugar over the next year in the face of a strong increase in domestic demand for Sugar-based ethanol. The explosive move to the upside in Corn recently may result in food manufacturers switching from Corn-based sweeteners to Sugar in an effort to cut rising costs. While the market has risen on expectations of strong demand and possible supply cuts, the fundamental picture still remains moderately bearish, with world stocks remaining at very high levels. March Sugar appears to be showing a breakout from a bullish flag pattern on the daily chart this morning – the signal is contingent on the contract closing above the 10.80 mark for the day. Traders may not get overly bullish on the continuation pattern, as the recent rally has been built upon relatively light volume. Momentum is showing bullish divergence from the RSI, which remains at overbought levels. Support can be found at 10.56 and 10.20, while resistance comes in at 11.32 and 11.66.
E-mini S&P – Stock index futures are posting modest gains this morning ahead of the final Q3 GDP numbers. Analysts are expecting no revision to the prior figure of 4.9 percent, which showed solid economic growth prior to the subprime fallout. Retailers led the market lower yesterday after a third consecutive week of lackluster sales. The holiday season started off with a bang, with sales topping the most bullish forecasts, but 2007 go out with a whimper if sales do not pick up going into the Christmas holiday. Private research group the Conference Board is releasing its Leading Economic Indicators report this morning, which is expected to show economic growth during the month of November dropping at a pace of 0.3 percent. Yesterday was a very choppy, indecisive day of trading, leading to a spinning top candlestick, which may indicate a slight upside bias. Traders may be looking for March futures to have a solid close above the 1500 mark to restore some confidence in the market. There are conflicting short-term technical signals, with a bearish crossover of the 9- and 18-day moving averages on the daily chart, but momentum studies are sharply outpacing both price and RSI. Support comes in at 1445.75 and 1415.75, while resistance can be found at 1480 and 1500.
Crude Oil – The Oil market is posting modest gains for the second consecutive day on a fairly bullish inventory report yesterday, which showed a large drawdown of over 7.5 million barrels for the week. The size of the drawdown was largely attributed to weather problems, resulting in traders' views that this was only a temporary setback. In addition, Cushing, Oklahoma – the key delivery point for the NYMEX contract – showed a build for the sixth consecutive week. The market has not been able to get solid upside momentum recently from bullish supply and demand in the face of an economic slowdown. Energy Secretary Sam Bodman is expected to go to the Middle East next month to lobby OPEC to increase supplies, which may be a hard sell given the recent economic data. The daily February Crude Oil chart remains in a consolidation pattern, with the market not able to find a direction. The 18-day moving average is closing in on the 50-day and a crossover could be considered bearish longer-term. Momentum is showing slight bullish divergence from the RSI, which suggests a positive short-term bias. Support comes in at 89.15 and 87.00, while resistance can be found at 93.00 and 94.70.
Rob Kurzatkowski, Commodity Analyst
