By John Sheridan
Often the best trading opportunities occur when we have an instrument trending in the same direction across multiple timeframes. When trends become established on commodities, they have the potential to last for a sustained period. We have just such an alignment of the stars occurring in Sugar right now.
Driven by a global surplus, the price of Sugar has dropped dramatically since late 2016. While as technical traders we aren’t overly concerned by the underlying fundamentals of the instrument we’re trading, the fact that Sugar’s price move is driven by a global surplus does increase the probability of this trend continuing.
But having said that, we will always base our trading decisions on our analysis of price action. Starting our analysis on the monthly timeframe, we can see that an interesting chart structure has emerged.We can see that a confirmed downtrend trend has emerged, with a clear series of lower highs and lower lows. Our moving averages (MAs) are not quite in the optimal geometry, but price has broken through the support that had formed at 12.8000. The trend momentum is confirmed by the bearish convergence on both the RSI and the MACD.Moving to the weekly time frame (above), we can see that the downtrend is also apparent, lower highs and lows defining this and showing the optimal MA geometry, with the 200 period MA on top, the 50 MA below the 200, the 20 period MA below the 50 and the 10 below the 20. The break below the 12.8000 level is even more apparent on this timeframe, and again the trend momentum is confirmed by the MAs.
Drilling down to the daily chart (above), we can again see that we are trending nicely, with the MAs again showing the optimal geometry for a downtrend. The trend is behaving in an orderly way, consolidating sideways into the MA Sell Zone between the 10 and 20 period MAs, before taking the next move down.
Price has just broken through a local level of support at 12.1800. You’ll notice that the MACD and RSI aren’t fully convergent. RSI has made an equal low with price, but while the MACD is fractionally divergent, this isn’t enough to concern me. If we could see clear divergence that would be a red flag and I would pass on any trade setups, but this configuration - while not ideal - is acceptable.
I will be watching Sugar for potential trade setups around the 12.1800 level. Ideally, I’d like to see price move down further and then pull back to this level but will also look at trading the break of any new level of support that occurs if it is well-defined.
To summarise, with trend agreement across the Monthly, Weekly and Daily timeframes, Sugar is firmly on my watchlist. As long as this trend continues, I will be looking for opportunities to participate in its sweet decline.