Sugar May Rally to 2013 High on Fibonacci: Technical Analysis

(Bloomberg) – Sugar, the second-best performing commodity in the past three months, may extend a rally, taking the March contract to the highest this year, according to a technical analysis by FuturePath Trading LLC.

The attached chart shows March futures breached the 50 percent Fibonacci retracement on Oct. 10 and have traded near the 61.8 percent level of 19.18 cents a pound on ICE Futures U.S. in New York, signaling the climb may be sustained, according to Paul Kavanaugh, the director of business development at FuturePath. He predicts prices may rise to 20.72 cents by December, the highest for the contract since Jan 3.

“We’ve got a significant change in trend,” Kavanaugh said in a telephone interview from Chicago. “We may be headed for new highs for the year,” he said.

March futures have rebounded 14 percent since reaching 16.7 cents on July 16, the lowest ever for the contract. Sugar rallied as frost in Brazil, the world’s largest producer, pared yields and rains delayed the harvest. Unica, a Sao Paulo-based sugar millers’ group, cut its estimate of production in the Center South, the country’s main growing region, to 34.2 million metric tons on Oct. 1, from 35.5 million in April, as yields decline. The outlook for cane, crushed to make sugar, may be lowered further, if rains persist, it said.

In technical analysis, investors and analysts study charts of trading patterns and prices to forecast price changes. Fibonacci studies are based on the theory that prices rise or fall by certain percentages after reaching a high or low.