Monday, April 14, 2014

Sugar's crossroads

By Erik Tatje

Sugar (NYBOT:SBK14)

Sugar again finds itself at a technical “crossroads” as price has come off a bit and looks to test the previous support level around 16.70. This significant Fibonacci Confluence Zone was previously tested back on 3/24, when it provided a reversal point for a rally in sugar that took prices above 18.00. The directional bias of this market remains sideways at best. A sustained break below the 16.70 would indeed mark a relatively lower low on the chart and could paint a more bearish outlook for sugar prices. Near-term momentum appears sideways to negative with price action failing to put in new relative highs. For those traders still bullish sugar, the recent pullback into the 16.70 area could offer a well-defined risk/reward buy setup in anticipation of a reversal off this level.

However, a failure below this Fibo C-Zone could easily inject additional technical selling pressure into the market. Traders should keep an eye on additional indicators, such as the RSI, for “clues” as to how price action is going to react to the 16.70 area. In terms of upside targets from here, initial resistance can be seen at 17.00 followed by 17.12 and the 17.35 – 17.40 area on the chart.

Crude oil (CME:CLK14)

Geo-political tensions overseas continues to weigh-in on the prices of crude oil as the May contract traded as high as 104.50 in the early morning session. Prices have since come off a bit; however, near-term momentum remains very bullish. The direcitoanl bias in the crude market also favors a bullish argument given the previous structure of price action. With that being said, price may have some trouble taking out the 104.50 level as it represents a longer term top established on 3/3. After an unsuccessful test of this level during Friday’s session, price has again failed from here in the early mornign trade and has pulled back below 104. This could be a potential near-term double top formation at this resistance pivot, but traders should wait for a price to confirm this with a break below the neckline of the formation. Given previous price action, it is difficult to be bearish on this market; yet, the 104.50 level on the chart is a solid level of resistance, and could provide aggressive traders a short-term, counter-trend selling opportunity in anticipation of a rejection.

Keep in mind, this strategy would be going against the directional bias of the market and would likely have a lower probability of success. For those traders looking to align their strategy with the underlying tone of the market, perhaps buying dips into support would offer a more conservative trading opportunity. The 102.86 – 103.00 area has provided local support to price and could be a valid entry level for bullish traders. If you’d like to discuss additional trading strategies to implement in this market, please contact me directly.

Canadian Dollar (CME:D6)

The Canadian dollar has been very strong over the past six weeks and the recent pullback in price could offer bullish traders an opportunity to get long this market from a more favorable entry point. After peaking around 9200, price has pulled back a bit and now finds itself trading around 9100. In the event that recent weakness persists below 9100, the 90.62 – 90.66 area, as well as the 90.36 pivot, could provide additional support to price. The directional bias remains positive above the 9010 low and buying corrective pullbacks in price could prove to be a valid trading strategy. Price has been coming off a bit off the highs, so traders may want to wait for confirmation of a near-term bottom before getting aggressively long this market.

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