Sugar Futures Setting Up for a Big Move?

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 (click to enlarge) sugar prices have been in a downtrend since hitting an all time high of $36.08 in February of last year. 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 CANE and iPath DJ-UBS Sugar SGG. Neither Benzinga nor its staff recommend that you buy, sell, or hold any security. We do not offer investment advice, personalized or otherwise. Benzinga recommends that you conduct your own due diligence and consult a certified financial professional for personalized advice about your financial situation.