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Ideas that the current break is overdone on the downside and the sharp break in the US dollar was enough to spark solid gains in the overnight trading session. After a 150 point break from the November 28th highs, the market is a bit oversold and traders are attempting to figure out how much of this break occurred due to weakening fundamentals and how much may have occurred due to negative outside forces such as the strong dollar. Ideas that a massive stimulus package will be necessary to turn the US economy around helped to pressure the dollar overnight.

March sugar closed lower for the fifth session in a row on Friday as demand uncertainties, a strong US dollar and fears of accelerating deflationary pressures helped to drive sugar and many other commodity market lower on the day. The jump in job losses for November added to the demand concerns. In addition, the continued spiral down in energy prices has sparked increased redemptions for index funds who hold a massive net long position. The stock market recovery late in the sugar session helped support a strong recovery off of the early lows.

The Commitment-of-Traders report with options showed that trend-following funds were net buyers of 4,500 contracts for the week ending December 2nd to extend their net long position to nearly 30,000 contracts. However, this buying was more than offset by the long liquidation selling trend of index funds who reduced their net long position by 7,725 contracts to 226,220 contracts net long. The selling trend is negative and the hefty net long position of trend-following funds would suggest long liquidation selling is possible if support levels are violated.

The technical action is somewhat positive as the chart has an appearance of a double bottom with the successful test of the October lows. Open interest also increased by 6,124 contracts on the sharp break of December 4th. India production for the 2008/2009 season is starting off slow and the country is expected to produce just 20 million tonnes this season as compared with 26.5 million tonnes last year.

This content originated from – The Hightower Report.
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