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This Commodity Could Rally 15% in the Coming Weeks

If this is a genuine breakout for sugar, then the price should gain 15% over the next few days…

After months of consolidating – at horribly depressed prices – it looks like sugar is ready to spike higher.

I’ve been bullish on sugar since April. And, frankly, I’ve been wrong on the trade. Sugar is trading down 15% since I turned bullish on it. But, it looks like the trade is finally ready to turn. Take a look at this chart…

It looks like sugar just broke out to the upside of an ascending triangle pattern. This is a bullish pattern that forms as a chart makes a series of higher lows, while also bumping into the same resistance area. The more times resistance is tested, the weaker it becomes, and the more powerful a breakout can be once it finally happens.

If this is a genuine breakout for sugar, then the price should approach the May high of $0.165 within the next few weeks. That would be a 15% gain from yesterday’s closing price.

Adding to this bullish setup is the current actions of commercial traders – also known as “the smart money.”

Commercial traders are the producers of sugar, the banks that finance sugar businesses, and the institutions that are already dependent on the price of sugar. They usually use the commodity futures market to hedge against a price decline. So, they almost always are net short sugar futures contracts.

But not now.

Right now, the smart money is net long sugar contracts. And, they’re net long more than at any other time in the past 20 years.

Meanwhile, the small traders – aka the “dumb money” – are net short sugar futures contracts more than at any other time in the past 20 years.

So, we have a situation where the smart money is betting big-time on a rally in the price of sugar, and the dumb money is betting big-time on a price decline. The last time we had anything similar to this sort of setup was back in mid-2007, just before the price of sugar rallied more than 40%.

I’m not looking for that large of a move this time around. But a challenge of the mid-May high sure looks like a good target for this breakout.

Best regards and good trading,

Jeff Clark

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Reader Mailbag

In today’s mailbag, Jeff answers questions about what traders can – and cannot – control…

What is your opinion on the theory of silver price manipulation on the COMEX [Commodity Exchange] by JPMorgan Chase. Real or theory?

–  Everett H.

Jeff’s response: Hi Everett, thanks for writing in.

Anybody with a big enough wallet can manipulate prices in the short term. And, in the currency, metals, and commodity futures markets – where volume is limited – a single entity, or several entities working together, can easily pressure prices.

It can and does happen – though probably to a much lesser degree than the conspiracy theorists complain of.

But here’s the thing… If you are a believer in higher long-term metals prices, then price manipulation to the downside gives you a chance to buy gold and silver at cheaper prices.

In your Market Minute Friday, you said “On three previous occasions this year, when the short-term moving average (the black line) on the MACD indicator crossed above the longer-term moving average (the red line), it marked the start of an intermediate-term rally for the gold sector.”

Sometimes I wonder what is driving the market and how does that reflect in the averages? In other words, do these technical averages drive the market or do other factors drive the market which are reflected in the averages?

It may be good to watch the moving averages, but as you well know, that is like watching in your rearview mirror to determine what is coming at you from the front of the car. That is a scary way to drive a car.

Thanks for your analysis and market commentary. I do like reading it.

–  Ron S.

Jeff’s response: Hi Ron. Lots of people view technical analysis as you do – like looking in the rearview mirror to see where you’re driving.

I have a slightly different view. To me, a stock chart is a snapshot of the market’s emotion on that stock at that moment in time. If I can look back at previous times when the emotion was similar, then I can see how the market acted back then and get an idea of how the market will behave this time.

But, it’s an emotion. It evolves. So, the behavior won’t be identical. I’m just betting that it’s similar enough to create a high probability, low-risk trade.

Editor’s note: If you have any questions about technical analysis and trading, want to share a past trading experience, or simply have a suggestion for the Market Minute or Delta Report, send them right here.