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Sugar - A Developing Trade. Upside Expectation

Apr. 05, 2011 12:14 AM ET
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Seeking Alpha Analyst Since 2009

Michael Noonan Edge Trader Plus Michael Noonan is the driving force behind Edge Trader Plus. He has been in the futures business for 30 years, functioning primarily in an individual capacity. He was the research analyst for the largest investment banker in the South, at one time, and he managed money in the cash bond market for a $5 billion pension fund using Peter Steidlmeyer’s Market Profile. Proficient in Gann, Elliott Wave, Market Profile, etc, Mr Noonan no longer uses any of those technical procedures. Instead, his primary focus is on developing market activity, relying solely on the information generated by the market itself, such as the interaction between price and volume, and how they relate to important price levels in the market structure. He incorporates proven market principles, such as knowledge of the trend, supply and demand, along with disciplined rules for to find developing high probability trade opportunities. He can be reached by e-mail at his website: mn@edgetraderplus.com

Monday Evening  4 April 2011

 It is not very often that we trade the New York softs complex, but
the weekly sugar chart caught our attention.  From there, we
turned our focus to the smaller time frame as a trading range had
developed. The further along price moves on the Right Hand Side,
[RHS], of a trading range, [TR], the closer it comes to reaching a
resolve by breaking out of that range.

 A previous support area has been identified on the left side of
the chart.  As things developed, 28 became the upper resistance
for the developing TR, and after two probes lower, the 26.35 area
became support.  On 30 March, we see a very strong move down
accompanied by a sharp increase on volume.  A notable volume
spike can often be stopping action.  This was the third probe.

 After two previous probes in the same area, and price moving
further along the RHS of the TR, when the market was able to rally
above the high volume down bar, it erased all the effort from sellers,
and it also confirmed what we viewed as stopping action at previous
support.  Price actually went just a little lower than the two prior
probes, and the fact that there was no downside continuation tells
us there were no more sellers and no more stops under the market. 
That could only mean one thing: a rally should ensue.

 SUK 30m 30 Mar 11

 Price labored a few more days, but as of the close on Monday,
sugar is back to the previous resistance.  As we watched the intra
day market develop, we noted that the strongest volume bars were
rally's, and that is typical of buying, exactly the kind of activity we
want to see. 

 Since the climatic selling volume on the 30th, Monday's rally
volume was the second highest as price reached the 28 cent
resistance level.  Note how the bar ranges were much smaller as
price corrected after the high and volume shrank considerably. 
This tells us there is very little selling pressure, and the market is
likely to continue higher.

 If we are reading the present tense developing market activity
correctly, we should see a strong volume breakout above 28,
with a high end close. That will confirm that the RHS
development has ended, and price should move higher.

 SUK 30m 4 Apr 11

 One has to be very careful about using multiple time frames,
and they are best used in sync with the market direction.  We
mentioned how the weekly chart was the genesis for the trade
decision to buy, based on the intra day charts.

 Sugar is making higher highs and higher lows.  The correction
from the price rejection at 36 has been a longer one since the
May 2010 lows.  The last correction ended in November 2010,
and we drew a horizontal line to the right, making the line dotted
to show how it was being projected into the future from the
November low.

 It was no accident that the current correction stopped at that
same level, now support.  What we also noted were two other f

 1.  The closes were clustering, and that can signify a change
      in trend direction

 2. The last three weeks' closes were on the upper end of the
     range, and that says buyers were present.

 These were the factors that went into reading the two 30 minute
charts above in making the decision to go with what appears to be
developing upward momentum.

 The market will soon let us know.

SUK W 4 Apr 11

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