In the eyes of mainstream economics, financial markets perform according to the laws of physics. There is a cause: i.e. some external event. And, there's an effect: A rise or fall in a market's price depending on whether said event was positive or negative.
Okay. Let's think about that for a minute. All things being equal, in physics, if you drop an apple outside the window of a three-story building, said apple will always fall to the ground due to the outside force of gravity. This is a constant. The scenario will continually play out in exactly the same way no matter how many times you repeat it.
This, however, is far from the case when it comes to financial markets and "fundamentals." Here, one day prices supposedly fall on a certain news story, only to rise on that same news story the next day -- and then shrug it off entirely the next. In other words, an apple gets tossed out a window, only to shoot upwards to the sky.
Case in point: The recent media surrounding the "near vertical ascent" underway in Sugar. To wit: So far in 2009, sugar prices have soared more than 90% to a near 30-year high on August 12. As for the main causes behind the market's bullish frenzy, I've got just four simple words: "How 'bout them apples?" These in particular:
- "Raw sugar ends at a 28-year high, supported by tight supplies in major grow areas Brazil and India. We have a deficit going forward. The fundamentals are very supportive in the market." (Reuters)
Problem, if a global deficit in sugar supplies triggers a rally, then why did the market spend the entire year of 2008 in a prolonged downtrend -- even as supplies experienced a major deficit. To be exact, 2008-9 saw a shortfall of 15.1 million metric tons, three times larger than the estimated 2009-10 figure of 5.1 million tons. (Wall Street Journal)
Next up: "Sugar's gains also were supported by an advance in crude oil." (AP) We've all heard this one before, as oil and sugar supposedly move in tandem. What about the time period of October 2008 through March 2009? That's when sugar prices marched upward even as crude oil prices plunged.
Last on the list need no further explanation:
"Sugar Slithers But Bulls In Charge" -- VERSUS -- "Sugar Consolidates; Bullishness Already Priced In."
AND,
"Sugar prices staged a solid recovery, bucking negatives like a firmer dollar." -- VERSUS -- "Sugar falls on firmer dollar."
Don't get turned around by the false causality of fundamental analysis. Stay ahead of the major turns in sugar via the August 26 Daily Futures Junctures. In that publication, Elliott Wave International's chief commodity expert Jeffrey Kennedy presents objective insight into the market's near-term trend.