Hightower Sugar Full Commentary
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DAILY SUGAR COMMENTARY
03/09/10
More long liquidation selling with funds still long 153,218 contracts
The market is oversold basis traditional technical indicators but the COT report on the weekend showed that there could be significantly more speculative long liquidation selling ahead. May sugar closed sharply lower on the session and to the lowest close since early December. The COT reports on the weekend showed that speculators were still in a long liquidation mode which was expected but the market did not expect that speculators still held a massive net long position. Non-commercial traders (funds) still held a net long position of 153,218 contracts as of March 2nd. This leaves the market vulnerable to increased speculative selling if support levels are violated. Traders are waiting to see if or when new buyers will emerge on the break. Egypt bought 90,000 tonnes of sugar from Brazil but it was for delivery in August or September when sugar tightness will ease. Imports are likely from India, Pakistan, Indonesia, Mexico, US, Iraq and Iran. So far, however, these buyers have not emerged and some traders believe the buyers are waiting for the market to settle down and hopefully at lower price level. The lack of new news about buying in the spot market and continued speculative long liquidation selling helped to pressure the market overnight and yesterday. A strong US dollar and weakness in energy markets and other commodity markets helped to pressure sugar overnight. Guatemala sugar producers are buying back 23,000 tonnes of sugar which was sold to exporters because of worries about supply shortage. India sugar millers believe that production in India for the 2009/2010 season will reach just 16.8 million tonnes. This is up from a previous forecast of 16 million tonnes but still well down from annual consumption which is thought to be near 23-24 million tonnes. White sugar futures in London fell 3.2% and this added to the bearish tone for the market.
TODAY'S GUIDANCE: The next downside swing objective for May sugar comes in at 20.48 and if this support can not hold, the market may be heading to the 50% mark of the entire bull market of 2007 to 2010 which comes in at 19.38 for the nearby futures. Resistance comes in at 21.57 and 22.16.
TODAY'S MARKET IDEAS:
Buyers may want to stand aside until there is better evidence of a low. Aggressive buyers could pull the trigger on an at-the-money bull call spread on a further washout to 19.38.
NEW RECOMMENDATIONS:
None.
PREVIOUS RECOMMENDATIONS:
Long May sugar 22.00/23.50 bull call spread from 58 with an objective of 138. Risk to close under 33.
***This report includes information from sources believed to be reliable and accurate as of the date of this publication, but no independent verification has been made and we do not guarantee its accuracy or completeness. Opinions expressed are subject to change without notice. This report should not be construed as a request to engage in any transaction involving the purchase or sale of a futures contract and/or commodity option thereon. The risk of loss in trading futures contracts or commodity options can be substantial, and investors should carefully consider the inherent risks of such an investment in light of their financial condition. Any reproduction or retransmission of this report without the express written consent of The Hightower Report is strictly prohibited.