Ripe for a Pullback?
Fundamentals
Sugar futures are lower for the second consecutive session after testing the 25.00 level. The price of the sweetener has been on the rise since bottoming out in May, on concerns that the Brazilian and Indian crops may fall short of demand. Dry conditions in Brazil were of particular concern for traders, as it could have adversely affected next year's crop size. Rains are forecast for the better part of next week, which has eased concerns. Overall, the market may remain undersupplied, and importers could stockpile the sweetener given the global shortfalls and the uncertain outlook. India and Pakistan have had their own dose of bad weather, and the extent of damage from recent flooding remains unknown. The Sugar market seems to be overbought at the moment, in light of more favorable growing conditions in Brazil. This could trigger some profit-taking, as traders reassess their situation.
Trading Ideas
The supply and demand fundamentals for the Sugar market have not changed drastically, but rather, traders' future expectations may have shifted. The market had a gloomy outlook for the Brazilian crop, which has improved. Technically, we see the market possibly ripe for a correction, but the scope is unknown. Some traders may wish to play the Sugar market extremely cautiously at the moment, for example by entering into a bear put spread, or by protecting short positions with long calls
Technicals
Turning to the chart, we see a reversal pattern surface on the October Sugar chart. The candle on both Friday and Monday are gravestone dojis, with yesterday's being the more significant of the two. While this can be seen as a reversal, whether it is a long-term or short-term reversal remains to be seen. Support comes in near the 22.75 level, and the market could find additional price support at 21.04, the 38.2% Fibonacci retracement. The RSI is still overbought, which could aid selling pressure in the near-term.
Robert Kurzatkowski, Trading Specialist
