Ice Futures U.S. sugar futures shot up to an 'extra big'* 2.5% on Wednesday to close the day at 9.94¢ per lb. The rally came on a gap move, where the day's intra-day low (9.84¢) was higher than the previous day's high of 9.79¢. Due to Wednesday's jump, sugar futures crossed above its 5, 10, and 20-day moving averages.
* One-day percentage gain is more than three standard deviations above the average one-day percentage change measured over the last 30 trading days.
Q: How has sugar performed in the past, omitting repeat occurrences within 10 trading days, when it has gapped up to record an 'extra big' gain?
A: According to the 16 previous occurrences of this event, EventEdge indicates that sugar has shown a weak bearish edge that peaks 2 trading days after the event. Thus, the projected date for the peak of the bearish edge relative to the most recent occurrence of the event (Wednesday, Nov. 28, 2007) is Friday, Nov. 30, 2007.
Sugar declines in 88% of the cases (14 of 16) by an average of -4.1% relative to the close on the event date. The average of the two rallies is 4.8%. The overall return of the 16 cases is -3.0%, which, based on the close on the event date (9.94), provides a target price of 9.64¢.
Note that though sugar has declined 88% of the time on a rather large sample size, it still doesn't give us a strong edge. The reason for this is that the average of the two rallies outweighs the average of all 14 declines.
Thus, if we add another condition to the above event, we can get a much stronger edge, but significantly reduce the number of occurrences. For example, when we add the fact that sugar futures crossed above its 20-day moving average to the event, we get (see second graph below)...
According to the 5 previous occurrences of this event, sugar has shown a very strong bearish edge that peaks three trading days after the event. Thus, the projected date for the peak of the bearish edge relative to the most recent occurrence of the event (Wednesday, 28 Nov. 28, 2007) is Monday, Dec. 3, 2007.
Sugar declines in 100% of the cases (5 of 5) by an average of -4.5% relative to the close on the event date. The overall return of the five cases is -4.5%, which, based on the close of sugar on the event date (9.94), provides a target price of 9.49.
If you would like to see more details of this historical edge, go to www.markethistory.com
Ronish Patel is an analyst with MarketHistory.com.
