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Sugar Bowl Monday: Keep the Objective Lights Turned On
The Jan. 30 Daily Futures Junctures identifies an Elliott wave expanded flat underway in sugar.

By Nico Isaac
Mon, 04 Feb 2013 17:00:00 ET
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When the Superdome lost half of its power as I watched the 47th Super Bowl this past Sunday, my mind drifted quickly to fundamental analysis of financial markets.  

I know what you're thinking, "So did mine!"
 
The connection is obvious once you think about it: Using fundamentals to illuminate near-term trend changes of liquid markets is about as effective as playing football in a half-lit dome. One player can heave the ball (or market logic) into the air -- but nobody can see it well enough to make the catch.
 
Take, for instance, the recent pair of news stories regarding sugar's fundamental backdrop:
 
·         First, bullish demand flies into the air: "Sugar Prices Climb On Demand Concern... as Brazil's state-owned government energy company raised domestic gas prices. These collective policy shifts will surely divert more cane to ethanol production and [are] bullish to sugar." (Wall Street Journal)
 
·         Moments later, a different news source fails to catch the pass; it deems the policy shift as a non-event: "The gasoline price increase announced by the Brazilian government will not be enough to spur ethanol demand." (Bloomberg)
 
When all is said and done, fundamentals are at the mercy of public perception. Public perception of outside events is constantly changing. So by extension, fundamental analysts of financial markets are often blindsided by such changes.
 
Let's consider a different play all together. In the Jan. 30 Daily Futures Junctures, EWI's senior analyst and Futures Junctures Service editor Jeffrey Kennedy identified a pronounced, Elliott wave expanded flat pattern underway on sugar's daily price chart.
 
For newbies, an expanded flat is a simple, 3-wave A-B-C corrective pattern that subdivides 3-3-5. In an expanded flat, wave B terminates beyond the starting level of wave A, and wave C ends more substantially beyond the ending level of wave A. Here is an ideal diagram:
 
There are two main guidelines that pertain to the sub waves within an expanded flat:
 
·         The most common Fibonacci relationships between waves A and B are 1.23 and 1.382
·         The most common Fibonacci relationships between waves A and C are 1.618 or 2.618
 
These Fibonacci proportions act as a floodlight, illuminating the potential turning points for the pattern as it unfolds on sugar's price chart.
 
As for a real world example, here we wind the game clock back to last year. In the Dec. 2012 Monthly Futures Junctures, Jeffrey identified the same expanded flat pattern on the following price chart of cocoa.
 
 
Jeffrey used the aforementioned guidelines to label the expanded flat complete, with this bearish implication:
 
"Following the termination of an initial impulsive decline, prices formed an expanded flat. The combination of an impulsive decline and a corrective advance on cocoa's daily price chart strongly argues for a selloff below the November low of 2322, at a minimum."
 
From there, cocoa followed its bearish Elliott game plan to a T and plunged below the November low.
 
 

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