ICE sugar surges to fresh six-month high
Published: 09/08/2010, 8:21:32 AM
ICE October sugar futures soared Tuesday, continuing the strong technical uptrend in place since the early May low. However, potential bearish divergences on several momentum tools suggest the bull trend may be tiring, according to Dow Jones.
Since early May, ICE October sugar has climbed amid a clear series of higher highs and higher lows, from 13.67 to Tuesday's high at 21.43. The gains on Tuesday pushed the contract through the March 1 high at 21.39, marking a fresh six-month high for the market.
Traders may want to be on the lookout for a type of "blow-off" top as the contract has pierced the upper Bollinger band line on Tuesday and bearish divergences emerge on slow stochastics and the relative strength index. The move outside the upper Bollinger band line typically reveals an extreme type of move that usually can't be sustained.
Bollinger bands are a technical analysis tool. Bollinger bands can be used to measure the highness or lowness of a price relative to previous trades.
Meanwhile, daily momentum readings have failed to push to new highs, revealing a divergence between price and momentum. That is a technical warning signal that sometimes precedes a corrective pullback.
Paul Hare, executive vice president at the Linn Group, noted that ICE sugar "has been in a very strong uptrend."
However, he pointed to the 21.60 level as a price projection he has been watching for awhile. "That is a measured move off the May lows. Our advice would be to liquidate longs," Hare explained.
Additionally, Hare pointed to the daily chart and noted the sugar contract was approaching major resistance from the January and February 2010 highs, at 22.78 and 22.77, respectively.
According to Hare, "The 21.50-22.50 area will be a tough spot for October sugar. My attitude would be to get out of longs and take profits. It has been a pretty good run and 21.60 has been a target for us for awhile."