- New Science in old markets -

Sugar extends, Nikkei compresses. A brief bubble update

Both London (1st chart) and New York (2nd chart) sugar futures made top extensions yesterday. Sugar is mainly produced in vertically integrated agribusinesses that own the production process throughout, as is common in many types of crop.  This means that any reduction in supply (or even the fear of it) reduces marginal supply sharply and a large run-up in price can occur. These then collapse as quickly as they arose and this has been happening for decades. It is worth trying to sell but it is also dangerous as these run-ups can keep going long past prices that seem expensive. Try selling short now but don't risk much.

Sugar top exts


Elsewhere, Chicago Nikkei futures have compressed:

Nikkei compression

This market has been trading sideways all year amid fears that the Japanese economy is unrepairable - mired in unimaginable levels of debt and moribund. The authorities have been thrashing about to find remedies, including the most aggressive exercise in QE yet seen, buying equity market instruments as well as bonds. Pessimism abounds and these are the perfect conditions for a short squeeze. if this compression breaks upward, buy it. Even if prices are trading a little above it later in then day, buy it.

The US equity market seems to have begun the climb that we have been forecasting and other equity markets will benefit from it. It may be that Japan will benefit more than most. The prospects of a bubble inflating in the US equity market are good, for reasons stated in recent editions - search our archive for the words 'bubble watch'.