TECHNICALS-Price surge yet to lift raw sugar out of downtrend

06-Oct-2015 06:26:56 PM
By Marcy Nicholson
NEW YORK, Oct 6 (Reuters) – ICE spot raw sugar futures could be revving up to breach 14 cents per lb after marking their biggest weekly surge since 2008, but the market is still held in its long-term downtrend, analysts said on Tuesday.
“It could be a bull trap in a bear market because typically you don’t see new bull markets begin off of that type of severe buying,” said Adam Sarhan, chief executive of Sarhan Capital in New York.
“It’s too early to tell if we’re out of the woods or if this is just a bear market rally.”
Spot raw sugar prices SBc1 surged 15 percent last week and extended gains to reach a seven-month high at 13.67 cents per lb on Monday. On Tuesday, however, the benchmark contract was little changed, making a candlestick formation that has the potential to be a “hangman,” indicating a loss of upward momentum.
A “hangman” is when the contract opens and closes near the session highs with lower intraday dealings, forming a tail on the charts. If this formation is followed with a strong day lower and then a series of lower settlements mirroring the recent rise, it would confirm the “hangman” formation and point toward the market heading a new low, said Brian LaRose, technical analyst for ICAP in Jersey City.
“The risk here is far too great because if you don’t break out, you could see 10 cents or perhaps lower,” he said.
Though the downtrend from the July 2012 high remains intact, if the rally breaches and holds above 14 cents per lb, which is roughly where the downtrend line currently is, the next stop could be 16.25 cents, La Rose said.
This is roughly the 23.6 percent Fibonacci retracement level to the 2011 high.
“If the (Brazilian) real actually does turn here for a short period of time, that could potentially give sugar the possibility of some sort of short-term lift off,” LaRose said.
The Brazilian currency BRL= sank to an all-time low against the U.S. dollar in late September, a source of pressure for the sugar market as it encouraged producers, and in turn speculators, to sell into the dollar-traded commodity. A stronger real, on the other hand, can be supportive to sugar prices.