Sugar Futures 2012-05-18

Here we will be examining sugar futures. Specifically, we will be looking at the October contract for sugar. Currently, July is the front month. However, as I am looking for a move that might potentially last longer than July, I have given preference to the October contract as it is currently running on sufficient volume for my purposes.

We will observe two charts, one for the October sugar futures contract on a daily time frame, and the other for the same contract on a 60 minute time frame. We will look at the daily chart to observe overall trend reversal, and the 60 minute chart to identify a specific entry method.

First, let us look at the daily futures chart for the October sugar contract.

What we are seeing here is a potential bottom in sugar prices. As we can see, prices bounced off the 20.50 level and rose to the 21.20 area. In the next chart (60 minute time frame) we will see how an MACD divergence formed to create a top in the 21.20 level. The expectation is to see prices decline again to the 20.50 area. As we can see on the daily chart, MACD has been rising. MACD has been rising not only during the past week's upward bounce, but also over the two or so weeks prior. This has created a situation that is telling me that prices have reached their lowest. If prices reach an equal or lower low (than 20.50) next week, while MACD continues to be higher, then this should be a very strong signal to take a long entry. And this is exactly what I will be looking for in the coming days.

Regardless of whether or not prices do challenge the previous low of 20.50, I will be looking for a "bottom" on the 60 minute time frame in the form of another MACD divergence. Let us now look at the 60 minute October sugar futures chart for a graphic example.

What we see are some red lines an a yellow arrow. This is the clue that told me to wait for lower prices before entering into this trade for a longer period exit target. As we can see, prices topped out at about 21.20, while the MACD sloped downwards. I must now wait for the situation to be reversed. I will wait for prices to make new lows, which I am expecting to go to the 20.50 area, all the while watching for the MACD to begin sloping upwards as prices make those lows. If, and when, this occurs I will have my buy-entry signal for a trade. I am hoping that it will signal the beginning of a longer upwards trend, as is being confirmed by the daily chart.

This sugar trade is pretty well my sole trading focus for next week. I had entered two long sugar trade earlier this week, with the anticipation that a short term top (like the one in the 60 minute chart) would occur. I made a couple of hundred bucks. Other trades I am looking at are a second bottom in gold prices, and a bottom in AUD/USD futures. I was looking at a top in the Yen/USD and the USDX, but I don't like the way they look anymore. A trade in a USDX top might still be in my books, we'll see. Like I said, trading sugar long is going to be my #1 priority for next week. Remember, safety stops are always a must have.

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