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With an extreme overbought condition basis the COT report and a move to the lowest level since May 18th overnight, speculative long liquidation selling looks more active over the near-term. Weakness in the energy markets and another significant jump in the US dollar helped to pressure the market overnight. The London chart looks similarly top heavy and with open interest in New York at the highest level since mid-September, traders might expect increased selling from speculators. Open interest is up near 80,000 contracts since mid-May and new buyers since this time are now underwater. October sugar closed lower on the session on Friday and down to a six-session low as long liquidation selling in a wide range of commodity markets helped to pressure. Fund traders have been holding a massive net long position in sugar for the past several weeks but the market has not moved above the June 1st highs and has moved mostly sideways since Mid-May. A sharp 3-day break in August futures in London to the lowest level since May 18th on Friday was also seen as a negative factor. The Commitment-of-Traders reports on Friday showed a continued long liquidation trend from speculators and a continued high net long position from speculators. This is a bearish combination as trend-following funds reduced their net long position by 9,563 contracts to 112,558 contracts. The market saw liquidation from a similarly high net long position from late February of 2008. Index funds were also aggressive sellers reducing their net long position by 7,871 contracts to 193,168 contracts. The selling trend from funds (more than 17,000 for the week) is considered a bearish short-term force.
TODAY’S GUIDANCE: Trend-following funds hold an enormous net long position and are also in a long liquidation mode. With a longer-term positive set-up, a sharp cleansing break in sugar will eventually be a buying opportunity but short-term weakness should be expected.
