May 28, 2020
U.S. DOLLAR INDEX, SUGAR
Be advised that all my comments are my OPINION and that OPINION is based on my long term in-house model that I dubbed LAWG 647. The prices I use in my model are week ending prices, usually Friday. BTW, trading commodities is risky and not meant for those that faint at the sight of blood.
It is my observation that over the past several weeks there has been a change in the tenor of commodity markets. A number of commodities like Crude and Cattle have reversed trends from bearish to bullish. There are a number of other commodities that may be close to reversing the present trends. On Monday we addressed Cattle and Hogs today let’s look at July Sugar, and June U.S. Dollar Index.
We are going to start with the U.S. Dollar Index.
When the potential effect of the Covid-19 outbreak became known the Dollar Index rallied 919 points from March 9, to March 23. I think it interesting to note that just prior to the Covid-19 rally the Dollar was in a significant downward bias. From February 20, to the close of March 9 the Dollar lost over 460 points, and then along came Covid. Starting around March 27 weekly closes of the Dollar have been in 210 point range with the low set on March 27 at 98.537 and the high set on April 3 at 100.677. So what happens now?
According to the Model we know that the June Dollar Index has been in a long term uptrend. It tells us that after a very hectic period during the Covid-19 rally both the Positive and Negative Indicators are now within the first standard deviation of the long term average. We know that June Dollar Index closed last Friday at 99.888, and the Model tells us that the June Dollar Index is in RED ALERT status. Finally the Model tells us if the June Dollar Index closes at or below 101.02 on Friday the trend will reverse to bearish. To provide a little context as I write this the June Dollar is trading at 98.89. Given that today is Thursday we have to acknowledge such a move is possible, our question is how likely.
What to do?
It is my opinion a move from 99.11 to 101.02 is not likely ergo I suggest looking for values to sell. You may wish to consider selling June at 99.75.
Like most commodities Sugar was negatively impacted by Covid-19, along with Saudi Arabia and Russia peeing on each others shoes. After making a low on April 28 Sugar has been in a steady grind higher and has put itself is a position of a possible trend change.
So what does the Model tell us?
It tells us as of the close Friday, May 22 July Sugar remains in a long term downtrend. The Sugar Market is not over bought, as the RSI as of this writing it stands at 53. The Model concurs as both Indicators are now within the first Standard Deviation of the long term average. We know that July Sugar closed last Friday at 1093, and the Model tells us that Sugar is in RED ALERT status. Finally the Model tells us if the July Sugar closes at or above 10.83 on Friday the trend will reverse to bullish. Again, to provide a little context as I write this July Sugar is trading at 10.75.
What to do?
It appears that in the immediate July Sugar may have difficulty punching through and remaining the 11.27/11.35 area. Failure to master that area suggests that July Sugar may have to set back to the 10.40 level before taking and another run up. I suggest standing aside until we see a violation of 11.27/11.35 or get a trend change confirmation of 10.83 on Friday.
My name is Lee Gaus and if you would like to see more of our thoughts go to our website ifgfutures.com. There you will also find articles written by my partners Tom Fritz, Steve Erdman. If you have any questions you can reach me at 1-877-304-1369, 312-384-1166, or email me atl[email protected] If you have a commodity you would like me examine feel free to drop me a quick e-mail at[email protected], I will do my best to accommodate.
There is significant risk involved in trading futures and/or options on futures.