ICE sugar stalls at resistance

Published: 07/18/2012, 5:02:09 PM

ICE October sugar bulls have run out of steam over the past week as the market  shifted into a short-term sideways trend. The strong uptrend off the early June low has hit a wall of resistance and will be key to watch in the near-term, according to Dow Jones.

ICE October sugar recently traded down 34 points at 22.45 cents a pound.

While ICE sugar bulls have posted a good run over the last month, climbing from 19.24 cents in early June to 23.05 cents on July 10, a number of bearish technical signals have emerged on the daily chart that need watching.

First, action on July 10 formed a bearish reversal day, as the sugar market hit a new recent rally high, but closed lower near the day's lows. That underscores the bull's inability to defend the push to new recent highs.

Additionally, a bearish divergence has emerged on the nine-day relative strength index, or RSI, a widely watched momentum tool. This simply means that while prices pushed to that new recent high July 10, the RSI didn't confirm it with a new higher reading in that tool. Instead, RSI has turned lower from above the 70% level, which is considered overbought territory. Generally, technical traders interpret that action as a negative signal.

Terry Gabriel, global head of technical analysis research at Ideaglobal in New York, said "sugar has reached a lot of resistance levels." He noted that over the last week, the sugar market stalled near the 50% retracement of the selloff from the July 2011 high to the June 2012 low. Also, Gabriel highlighted a zone of "congestive" resistance in the 22.22-22.82 zone. Additionally, he drew a resistance line down from the July 2011 high, which comes in around 24.00.

Finally, the "200-day moving average has been quite sticky over the last week and a half. The market has been churning above it and below it," he said. The 200-day moving average currently lies at 22.73.

"My sense is that we get into the high 22.00's and 23.00's and then sugar is going to run out of steam and will likely to sell back," Gabriel said.

"We may see some more range trade and we could see probes to 23.40 or 24.00. But, I expect the market will exhaust and retreat," he said. Over the next one to two months, Gabriel saw potential for ICE Oct sugar futures to retreat back down to the 21.50 area.

His advice for traders? "Stand aside [right now]. But, be a seller in the event that we have a probe over 23.00, with a stop just over 24.00 looking for a decline to 21.50," Gabriel concluded.