After a historic rally fueled by Coffee and Cocoa, our Soft Commodity Index is finally hitting a major wall.
With the price stalling at the 2011 highs and signs of distribution setting in, it’s time to shift our focus from chasing strength to hunting weakness.
One commodity, in particular, is standing out on the downside, and it's giving us a sweet setup to take advantage of.
Let's talk about it...
Our Soft Commodity Index is running into resistance 🛑
Our Soft Commodity Index is an equal-weight basket of Cotton, Coffee, Cocoa, and Sugar.
It has increased in price by more than 150% over the last 5 years. This was primarily driven by historic uptrends in Coffee and Cocoa, which rallied 350% and 500%, respectively.
The complex was the home to some of the best trends in commodities for years.
Now, the uptrend has recently stalled out at the 2011 peak...
This is the principle of polarity at work.
Until the market proves otherwise, we're betting supply continues to outstrip demand at these levels.
That means we're hunting for short setups in the weakest contracts.
And remember, selling commodities isn't like selling stocks short.
There are no carrying costs. Selling is just as easy as buying.
Sugar is breaking down in relative terms 📉
Sugar futures have undercut the 2008 low relative to our Soft Commodity Index and turned the former support into resistance.
This is about as decisive a resolution as you can get.
The message from the market is clear: Sugar is in a firm downtrend.
We want to lean into this relative weakness.
Here's how we're trading Sugar futures 👇
Sugar futures have carved out a textbook distribution pattern, and the bears look poised to take control soon.
If and when this top is completed, the path of least resistance will shift from sideways to lower for the foreseeable future.
We want to short Sugar futures on weakness below 17.25, with a target of 14.70 over the coming 1-3 months. Over longer timeframes, we're looking at a secondary objective of the 2020 low near 9.20.
That's nearly 50% potential downside, which can be magnified even further with leverage in the futures market.
This week, we're outlining the $10B engineering & construction company, Stantec $STN.
The company specializes in engineering, architecture, and environmental services.
With over 32,000 employees and 450 locations worldwide, they are one of the biggest players in the industry.
The stock is flirting with new all-time highs as the bulls look to put the finishing touches on a textbook multi-year accumulation pattern.
The upper bounds of the range coincide with a key Fibonacci extension level. This is where we want to define our risk and take a swing from the long side.
Here's how we're trading STN 👇
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