These days, sugar prices are about as sweet as a can of expired tuna fish. Last check: From their early February peak, sugar has plunged 25%-plus to land at its lowest level in six months.
For many mainstream experts, sugar's powerful sell-off was about as expected as a grand piano falling out of a five-story window. See, back at the market's hey day in early February, sugar prices stood at a 37-year high. And at the time, a perfect bullish trifecta of "fundamentals" ensured that the market's next major move would be UP: high demand, low supply and bad weather. Here, the following news items from the time capture the scene:
- "Sugar has more than doubled since the end of May. We have strong demand, production losses, and low supplies." (Bloomberg)
Then, on February 2, tropical cyclone Yasi slammed into Australia's Queensland coast, further reinforcing sugar's bullish momentum. "Sugar to Skyrocket after Yasi," read one headline in the storm's aftermath. Said another:
- "Sugar May Spike as supply takes a hit from recent flooding in Australia. The impact of this cyclone is more severe compared to the cyclone rally that happened in 2006." (CNA.com)
Well, replace the "a" in soar with a "u" -- and that's what sugar prices did instead: S-O-U-R.
It's not that the mainstream experts didn't do their job in February. No, they did it perfectly well: They extrapolated the previous trend forward, as they usually do. There really was no "fundamental" reason to expect sugar to fall. The problem is with the "fundamental analysis" approach in general, because more often than not, external variables -- in this case, low supply, bad weather, etc. -- are a poor guide to a market's future price action, period.
By identifying the internal Elliott wave structure in sugar's price chart, however, EWI's chief commodity analyst Jeffery Kennedy was able to foresee the market's reversal early.
"Let's not sugar coat it: Wave patterns in sugar call for the current sell off from the February peak to continue. How do I arrive at such a forecast? The answer is simple as seen in Chart 1. Notice that the advance from the May 2010 low traced out five waves," which are now up and done.
Elliott wave analysis is not a crystal ball; it's about probabilities, not certainties. But by following the rules and guidelines of each of the 13 known Elliott wave patterns, Elliotticians have a much more objective way to forecast prices, often at the very onset of near- and long-term trend changes.