A Bottom Formation In Sugar

March Sugar had a spectacular move down from its high of 18.54 cents on

April 18, 2006 to its low of 10.66 cents on October 4, 2006. Finally, it looks as if Sugar has finally formed bottom formation and now is the time to prepare for a breakout to the upside.

In this 1-2-3 Bottom Formation, March Sugar’s Number One Bottom Point is the 10.66 on October 4, the Number 2 Point is 12.65 made on October 17, and a possible Number 3 point was made today, October 20 at 11.46 cents.

I only want to get into this trade if there is a confirmation of an up trend and to get confirmation, two conditions must be met. The first condition is that March Sugar should move up past resistance at the Number Two Point, 12.65 cents. The second condition is that I want to get the confirmation of an uptrend from United States Chart Company’s Trend Seeker Rating. As of today, Trend Seeker is showing Sugar with a Neutral Rating.

The reason I want to be sure that both conditions are met before going into this trade is to reduce risk. I want to be as sure as I can be before going long that the Sugar’s powerful downtrend of this past year is now over.

The first upside target for March Sugar would be at resistance at the 13 cent level. But, if Sugar can break past this barrier, then any further move to the upside could be substantial especially considering that Sugar has several gaps to fill above the 13 cent level. According to the 50 percent rule, Sugar has the potential to move up to the 14.6 cent level. A one cent move in Sugar is worth $1120 so a move up to the 14.6 level presents a profit potential of $2184.

Because of the volatility of the Sugar Market, I greatly prefer entering this trade using an option. The March Sugar 12.50 call looks the most attractive to me. At the close of trade today, October 20, this option had a value of $705.60.

I also like this option because this option has the chance to “get in the money” before Sugar hits resistance at 13 cents.

Update on my March Corn trade. March Corn closed down today by 2.2 cents.

To find more information on 1-2-3 Bottom formations, please visit my website at www.mylearn2trade.com.