Sugar futures, or the sugar continuous contract (you can also check out the July contract SBN20), rallied 4.5% today, leaving a potential bottoming pattern. Again.
This is important for 2 reasons. First, sugar is tied to ethanol, so that could signal that the worst of the oil debacle is over. Second, sugar is also a secret inflationary indicator, which could be telling us that deflation expectations have bottomed.
Let us look at both:
As the pandemic rolls on, gasoline consumption (in red) has expanded. The dark blue line shows implied ethanol demand, which is also rising. Note that the lighter blue line is actual ethanol demand, rising at the fastest rate. As ethanol fermentation uses sugar, that helps explain why sugar might have bottomed.
Sugar as a secret inflationary indicator is a topic I have written and spoken about in the past. What we could look at right now is not so much the inflation aspect, but, rather, the potential bottom of the deflationary metrics.
The Fed has clearly stated that they want to see a rise in inflation. Furthermore, with GDP declining by 4.8% and consumer spending declining by 7.6%, perhaps that, too, is the worst of it and, like gasoline demand, it's only up from here.
Regardless, looking at the chart, sugar made a new multiyear low and closed above the highs of the last 2 days. The volume was good.
Now, a move and close over 10.00 (or the 10-day moving average) could offer a low-risk buy, especially if, like the overall market, hope is truly returning to consumers.
- S&P 500 (SPY): 288-290 pivotal support as this enters a new level of resistance between 295-300
- Russell 2000 (IWM): 136.17 last swing high from 3/13/20. It also cleared a channel top, so now, if 135 fails, can be a potential short-and over 136.17 see 140-141
- Dow (DIA): 249 resistance, 238 support
- Nasdaq (QQQ): 216-217 support, 222 resistance
- KRE (Regional Banks): Prodigal getting lavish - 38.10 support to hold
- SMH (Semiconductors): Wonder woman strikes again - 135 the must hold
- IYT (Transportation): 155 resistance, 150 support
- IBB (Biotechnology): Inside day. Top of channel which, if clears, could see new all time high
- XRT (Retail): 38.50 is huge resistance, with 35.00 support
- Junk Bonds (JNK): Unconfirmed recuperation phase - needs to confirm, then see 101.00 area
- LQD (iShs iBoxx High yield Bonds): 130 pivotal, but looks like the consolidation will resolve to the upside
Mish Schneider
MarketGauge.com
Director of Trading Research and Education
