Sugar Futures Setting Up for a Big Move?

The past twelve months have not been kind to sugar investors. Contract prices have fallen from a high of $26.20 in March to the current price of $19.57 (/SB - December) - a 25.3 percent decline.

In fact, as the three year daily chart shows (click to enlarge), sugar prices have been in a downtrend since hitting an all time high of $36.08 in February of last year.

Sugar futures often undergo large swings once a trend is established -- another large move might be about to take place.

As the magnified one year daily chart below shows, since recently finding support around $19.25, sugar has twice tried, and subsequently failed, to close over $19.68. Tuesday's action saw contract prices once again bounce off support at $19.26 and rise to an intraday high of $19.77 before quickly selling off and closing at $19.57.

Should sugar futures break below $19.25 support, the 52-week low of $18.81 will be squarely in the sights of bears, as it is an oft-used stop out level for current longs. Once breached, a wave of sell orders should be expected as bulls abandon their positions and fresh shorts enter.

Looking at the three-year chart at the bottom of the article, once $18.81 is broken, no support might come into play until $17.51 (8/10/10), with no major support emerging until $15.00 (6/18/10 and 6/29/10) -- 10 percent and 23 percent lower than current prices.

Conversely, should bulls be able to orchestrate a close above $19.68, it would set up a run to the next resistance area at $20.50. A breach of that level could signify a key turning point in the trend as it would equate to a higher low and higher high. Beyond $20.50, no resistance might come into play until $21.77.

The above analysis can also be applied to corresponding ETFs Teucrium Sugar (NYSE:CANE) and iPath DJ-UBS Sugar (NYSE:SGG).

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