Commodity Traders: Are You Believing Your Way OUT of Opportunity?

Mainstream analysts believed sugar would be a pandemic casualty. But the commodity proved to have other plans

by Nico Isaac
Updated: December 21, 2021

Four years ago this Christmas, my dear friend Sam, his wife, baby girl and son packed up their Park Slope, Brooklyn brownstone and moved across the country to run a family apple orchard in the Pacific Northwest.

What prompted this relocation from big city life to rural permaculture, you may wonder?

Well, a million paper cuts, as Sam put it, accumulated at his high-powered C-suite job at a certain Manhattan ad agency. But he would've stayed there to "support" the family he increasingly never saw, if not for the straw that broke the camel's back --his then four-year old son Milo was bullied at school for still believing in Santa Claus.

Sam was determined to preserve Milo's innocence. He volunteered to "be" Saint Nick at his son's school so when Milo whispered his dream gift into his ear, he'd know. And when Milo found it under the Christmas tree that year, he'd still believe. But when Milo crawled up onto his lap, he whispered: "I want my dad to stop working all the time because I miss him so much."

The next day, Sam handed in his resignation, put the brownstone on the market, and set the apple orchard plan into motion -- a decision he and Milo are eternally grateful for.

This story underscores the power of a parent's love, and the lengths they go to keep their child's innocent beliefs alive. The benefits of this are incalculable.

But not all belief systems should be protected, as they can cause more harm than good. Case in point: The widely held belief in the news-driven model of financial market analysis. It goes like this: price trends are controlled by external factors such as weather patterns, economic data, political events, Fed policies, and so on, broadly known as "fundamentals."

And yet, every day there are countless examples of this belief system NOT being supported by reality. For example, the sugar market.

In the spring of 2020, sugar prices were circling multi-year lows. And, according to the mainstream, fundamental-eyeing experts, sugar was staring down the industry-wide bear-el of a pandemic-led crash in food prices and production. Recall, April 2020 was when oil experienced its worst crash in history, plunging into negative territory, thus cratering demand for ethanol-based fuel alternatives made from sugar.

That, along with a supply surplus caused by restaurant closures and drop in non-essential foods painted this sour picture for sugar's future:

• '"Sugar Market Sours as Oil Slides, Virus Spreads" (March 11 Wall Street Journal)
• "Food Prices Across the Globe Plummet -- Sugar Prices Crash" (April 3 The Dubrovnik Times)
• "Ethanol Demand Slump Puts Brazil Sugar Industry in a Grind" (April 17 Reuters)

As one April 3 Seeking Alpha put it:

"Despite a rush among individual shoppers in several major countries to hoard sugar in the face of COVID-19, traders shouldn't expect to see higher futures prices for the sweet commodity anytime soon."

And yet -- higher prices were exactly what sugar traders saw in the ensuing SIXTEEN consecutive months!

In turn, other factors "beyond fundamentals" are fueling sugar's trend now just as they were then. We believe in a different causality: Those factors are the psychology of investors themselves, which develop in clear Elliott wave-patterned setups directly on price charts.

Here, we go back to our April 2020 Monthly Commodity Junctures, where editor Jeffrey Kennedy alerted his subscribers to a bullish trend change in sugar's immediate future via the chart and analysis below:

"As we move from April into May, I do expect a low to form in this sugar market somewhere around the 9.11 area. this is a very, very mature impulsive decline. We're probably better than 90% complete as far as the current selloff.

"In other words, the downside is limited, and the next significant move will be to the upside."

From there, sugar prices bottomed right into Jeffrey's target area and began to climb. In the June 2020 Monthly Commodity Junctures, Jeffrey showed this chart of sugar which outlined the long-term road ahead: A powerful rally above the 20 cents per pound area in wave 3, followed by a fourth wave pullback.

And, this next chart captures how beautifully sugar prices followed their Elliott wave script, rallying into August 2021 to a four-year high before consolidating lower.

At some point when Milo was "6 and 3/4's years old" (his estimation!), he started noticing logistical loopholes in the Santa mythology; like, how could he possibly eat cookies from every household on the planet in one night without getting a stomachache? And eventually, he determined Santa may not, in fact, be real. But he came to that conclusion on his own terms, and his own time.

Market investors may be on that same path now; questioning the old myths of market behavior based on facts that tell a different story.

And when you're ready to believe in an independent model, our Commodity Junctures Service is here.