ICE sugar ripe for corrective re-bounce
Published: 08/14/2012, 5:17:54 PM
ICE October sugar futures collapsed sharply in recent weeks, diving from the 24.00-cent level on July 23 to the Aug. 13 low at 20.36. The market is deeply oversold according to traditional momentum indicators, leaving sugar ripe for a short-term countertrend rally bounce, according to Dow Jones.
ICE October sugar recently traded up 23 points at 20.62 cents.
In early Tuesday action, ICE October sugar is posting a consolidative "inside" day session, in which the high and low remain within Monday's range. The pause in the bear slide is not a surprise, as the sugar market has closed lower for the previous 10 consecutive sessions.
Looking at momentum readings, the nine-day relative strength index, hit 18% on Monday. Readings under the 30% level are considered to be "oversold."
Terry Gabriel, global head of technical analysis at Ideaglobal in New York, took a look at the bigger picture for the sugar market and said "it is a bear market off the July 2011 high. The weekly trend is down, the daily trend is down. But, very short-term, the market is ripe for a modest counter-reaction," he said.
Overall, Gabriel called the early June-late July rally a "counter-reaction" to the longer-term prevailing bear trend and now "that seems to have exhausted itself last month."
While "we should expect a bounce of some sort [near term], I would view that as a counter-reaction and we should look to be a seller on strength for further losses," Gabriel said.
Gabriel identified upside resistance levels at the 21.30 and 21.65 zones. "I think we could retrace and probe up there, but then I would expect the market to turn down again. On a two- to four-week basis, I expect sugar to test the June low at 19.24. Ultimately, I would expect that to be exceeded," Gabriel concluded.
However, if sugar bulls fail to gather enough momentum for a short-term corrective rally bounce, the near-term slide could continue. Gabriel warned "if we were to immediately break 20.36 [the Aug. 13 low], that would suggest the downtrend was continuing. But, the market would remain ripe for a sudden reaction [higher] due to oversold conditions."