October Sugar Futures (SBV) dropped a 'big'* 4.5% on Thursday despite opening up the session 1.5% higher than Wednesday's close. October sugar closed the session at 11.67¢ per lb. The decline came on an 'outside day' pattern, where the intra-day high was higher than the previous day's high and the low was lower than the previous day's low price.
Sugar Futures have been in a steady downtrend and have dropped more than 2¢ since just before September to Thursday's close. An outside day pattern can be interpreted as an indication of increasing volatility. Is it time to reverse directions and see the bulls?
* One-day percentage loss is more than one standard deviation stronger than the average one-day percentage change measured over the last 30 trading days.
Q: How has October sugar performed in the past when, during September, it records a 'big' decline on an 'outside day' pattern?
A: According to the 17 previous occurrences of this event, EventEdge indicates that SBV has shown a strong bullish edge that peaks 10 trading days after the event. Thus, the projected date for the peak of the bullish edge relative to the current event date (Thursday, Sept. 18, 2008) is Thursday, Oct. 2, 2008.
SBV rallies in 94% of the cases (16 of 17) by an average of 6.6% relative to the close on the event date. The average of the one decline is 2.7%. The overall return of the 17 cases is 6.0%, which, based on the close on the event date (11.67¢), provides a target price of 12.37¢.
Note that the graph below measures its strength using the T-score over the usual Z-stat because it takes into account the rather large number of occurrences. The T-score is calculated by multiplying the Z-stat (average return divided by the standard deviation) by the square root of the number of occurrences.
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Ronish Patel is an analyst with MarketHistory.com.
