As you likely know by now, JR and I like to buy what we perceive as “undervalued” and sell “overvalued.” We have been watching sugar for a while. It looks cheap. But there has been no sign of a bottom to this powerful downtrend that has now last 454 days so far. Today we saw a 3% rally in sugar prices. Thus, why we issued the Flash Alert to buy SGG at 60.04 [last trade is 59.75].

What was the driver today? This news:

MANILA, Philippines – The Philippines will reduce sugar exports to the United States for the current crop year which ends in September because of oversupply, officials of the Sugar Regulatory Administration (SRA) said yesterday. In a phone interview, SRA Board member Cocoy Barrera said there is oversupply in the US

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Raw sugar rose in New York after four sessions of declines as higher ethanol prices in Brazil, the leading producer of the sweetener, spurred speculation millers will use more cane to make the biofuel. Cocoa declined.

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Ethanol futures yesterday reached the highest level since May 8 on the BM&F Bovespa, Brazil’s futures exchange. Millers in center south, the country’s main growing region, used 58 percent of all cane processed to make ethanol rather than sugar in May’s second half, data from industry group Unica showed. That was up from 52 percent a year earlier.

Sugar weekly chart for additional perspective: If this pattern analysis is correct, we are close to a bottom in sugar. If so, the next long-term leg up could be a huge.

We may be early, and be too excited about this move higher today in sugar. But either way, this is an excellent long-term risk/reward trade.

Let’s let Mr. Market take us into this trade. If we get long here is says near-term momentum is in our favor. Definitely worth the risk we think.

Have a great weekend.

Regards, Jack and JR

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What: fundamental and technical analysis targeting long-term investment time frames in major global asset classes.

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