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 - Dec) - a 25.3 percent decline.
In fact, as the three-year daily chart at the bottom of the article shows sugar prices have been in a downtrend since hitting an all time high of $36.08 in February of 2011. Sugar futures have a tendency to undergo large swings once a trend is established, and it appears as though another large move is 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.
Needless to say, something is going to give. Whether that "something" is $19.25 support or $19.68 resistance remains to be seen, but the corresponding move will likely be substantial.
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 comes 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 comes into play until $21.77. Time will tell. The above analysis can also be applied to corresponding ETFs Teucrium Sugar (NYSE: CANE ) and iPath DJ-UBS Sugar (NYSE: SGG ).
