According to mainstream economic wisdom, financial markets are well-oiled machines steered by external news events: Fundamental “A” causes the market to swerve south (down), while fundamental “B” takes it in overdrive and heads north (up).
In the real world, however, those “machines” respond less like KITT, the obedient car of TV’s “Knight Rider” and more like the demon-possessed trucks of Stephen King’s horror flick “Maximum Overdrive.” There, if you turn the wheel one way, the tires spin in an entirely different direction.
Take, for instance, the mid-April reports on the powerful uptrend in SUGAR. In the eyes of the go-to-guys and girls, one main factor was driving prices to their highest level in over a month: Climbing crude oil.
On this, the following news items from the time say plenty:
· “Soaring Oil Prices A Blessing For Sugar Industry… The prices of the two commodities are highly synchronized. When oil climbs in price, so does sugar, and as you realize there is also a global shift towards cleaner fuels which boosts products such as ethanol.” (All Africa.com)
· “Sugar Rises as oil Gains… The links of sugar to crude oil has triggered the recent appreciation in prices…Sugar may continue to ride the bull wave if the rally in crude continues.” (Economic Times)
Here’s the problem: After hitting a one-month peak on April 16, sugar prices made a 180-degree u-turn to a four-month LOW on May 2. Yet -- for the better part of the sell-off, crude oil continued to soar. To wit: From April 16 to April 27, oil prices rocketed above $110-, $115-, and $120 per barrel.
So much for being “synchronized.”
That said, the sugar market is NOT possessed. It is not crazy. It only appears so when you expect it (or any financial market for that matter) to behave according to the laws of physics rather than those of the Elliott Wave Principle.
Case in point: One day before the recent downtrend in sugar got started (April 16), the April 15 Daily Futures Junctures presented three compelling charts of SUGAR alongside in-depth analysis. In the words of DFJ: “Sugar is approaching a high.”
Now, the May 8 Daily Futures Junctures revisits the sweet soft with a newly updated snapshot and original insight into the market’s near-term wave pattern. The way our analysis sees it, sugar is right “on track” for a major move.
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