Monday, February 27, 2012

This little-owned commodity could be starting its first major bull market in 31 years

Sugar has not experienced a rip roaring bull market in 31 years. That is about to change.

The vast overwhelming majority of traders have no clue what a for-real bull market in Sugar is like. I have lived (and traded successfully) through the big bull moves in Sugar — and I will tell you that there nothing like them.

A bull market in Sugar is the most explosive event in the commodity markets. Whereas traders today talk about the dream of catching a big Silver move, traders in the 1980s talked about the Sugar bull markets.

Sugar bull markets have a singular characteristic. When traders who want to buy a dip finally get a big enough dip to buy, they will not like what they get. There are two ways to get aboard a Sugar bull — at the market and on huge white-knuckle breaks.

Sugar bull markets are comprised of week after week of going up every day or huge breaks that run the stops of most speculators. If you get cute with a bull market in Sugar you will find yourself up to your neck in hardening syrup.

I believe we are in the early stages of the bull market to end all bull markets in Sugar. Let’s look at previous bull markets (as well as the current bull trend that started in 2007) for guidance.

First, let me make a point to you young guns who dismiss the signficance of market behavior from your grandfather’s generation. Those that understand market behavior best are part hisotorians, part psychologists and part economists. History has much to tell us about the future in all aspects of life. Dismiss history at your own peril.

1973 through 1974 bull move

During this bull trend prices seven fold in less than a year. When prices were not going up day after day, prices were undergoing huge breaks.

The breaks were as follows:

  • 24.46 to 15.90 or 856 points
  • 26.05 to 19.70 or 635 points
  • 37.35 to 26.70 or 1,066 points

Who among you could have withstood these breaks?

I want to focus on the last leg up in the 1974 bull run because this period is, in my opinion, the analog to our current Sugar market. That last leg up was defined by the following:

  • 26.70 to 66.00, or 3,930 points
  • 45 trading days
  • Average gain per day = 87 points
  • Only four days with a lower close
  • Not a single close above the low of the high day of the move

1979 through 1980 bull market

During this bull trend prices more than five fold in about 14 months. When prices were not going up day after day, prices were undergoing huge breaks.

The breaks were as follows:

  • 28.14 to 17.45 or 1,069 points
  • 37.35 to 29.50 or 785 points
  • 37.70 to 26.05 or 1,165 points

Who among you could have withstood these breaks?

Again I want to focus on the final leg of this bull move because I believe it is the analog to our current market.

There was one big break of 583 points in the middle of the run

Counting the big break in price but not time, the market advanced 2508 points in 11 weeks, for an average per day gain of 46 ponts.

2004 (or 2007) through ???? bull move

One reason I am as bullish as I am is that the up market that started in 2004 (or 2007) has not experienced a blow-off top. In fact, I believe we could be on the verge of entering this period.

The breaks that the market has experienced so far are as follows:

  • 19.75 to 8.36 or 1,139 points
  • 30.33 to 13.00 or 1,733 points
  • 36.08 to 20.40 or 1,568 points
  • 31.85 to 22.62 or 923 points

If I am correct in my analysis of Sugar, the mareket is done having big breaks — for now anyway. We should be entering the sweet spot of the bull run. As was the case in the bull moves in 1974 and 1980 as well as the blow off in Silver in early 2011, this final leg should not last long — maybe 13 to 16 weeks.

I am hearing a singular message from folks by email: “Sugar is overbought…what kind of a break can we get?” Wrong question for a Sugar bull market.

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