Update on the Sugar Short

A few days ago I mentioned that Sugar was a good short from both a fundamental and technical view. So far the trade has done well. The longs are currently in liquidation mode as market sentiment has changed dramatically. A few weeks ago the bulls were focusing on Brazil's weak crop estimates. Now, everyone is worried about the expected global sugar surplus of between 4-7 million tons for the 2011/2012 season. Furthermore, the risk on market sentiment has been turned off courtesy of Europe's financial implosion.

This situation represents trouble for the sugar bulls as the market is heavily long sugar. The sugar market is also at a key technical level. See chart below

March Sugar is currently trading at 25.84, which is just above the early August low of 25.38. If sugar fails to hold this level than it exposes 24 as the next downside target. If 24 is breached then we could see sugar fall to 22.

Volume, as you can see from the chart is starting to pick up as spec longs sell their losing positions. Adding to the bulls' woes, the CME's margin hike made it a little more expensive to hold sugar.

I remain short Sugar.

Black Swan Insights


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