A sweet spot for Rogers Sugar

The Stock: Rogers Sugar Income Fund

Recent price: $4.06

The trend: Like a number of soft commodities, the price of sugar has pushed progressively higher over the past quarter - reaching its highest level in a generation. The iPath Dow Jones-UBS Sugar Subindex Total Return exchange-traded notes jumped to another 52-week high last week, and gained almost 5 per cent yesterday, as global sugar supply is tested by poor agricultural conditions in India. India is the world's second-largest producer and largest consumer of the commodity. Sugar prices reflect the supply conditions in this rapidly growing emerging market, much in the same way certain hard commodity prices are determined by the Chinese market. The SGG ETN turned Stock Trends Bullish at the end of April when it traded at $45.71 (U.S.). It currently trades at $66. This hot commodity has fuelled price momentum in many global sugar stocks, including Imperial Sugar Co. - a stock that is up 75 per cent in the last three months.

The trade: The largest refined sugar distributor in Canada is Rogers Sugar Income Fund. Although Rogers is largely a domestic supplier, the bearish trend for natural gas, a key input for the refiner, and the bullish trend of global sugar prices make a compelling combination for investors. The fund was a Stock Trends Bullish Crossover three weeks ago - signalling that the 13-week moving average trend line has crossed above the 40-week moving average trend line. After reaching a low of $2.84 (Canadian) in March, the unit price of the fund has gradually made its way back to its December, 2008, level - around $4. Trade entry now anticipates the bullish trend advancing the units toward the next resistance area.

Source: www.stocktrends.ca

The upside: Increased distributions from the company obviously benefit the units, but the technical argument for unit prices advancing another 13 per cent to the $4.50 level is sweetening. Although weekly trading volume has been relatively stable recently, investors can anticipate Rogers' solid trend to attract more interest as world sugar prices continue their surge. Rogers' current unit yield of 11.6 per cent can stand to be squeezed to at least 10.5 per cent, its long-term average yield. That brings the units back to the January peak at $4.43, and tests this resistance level. In the context of the bullish picture for global sugar stocks, Rogers should breeze through this leg and possibly gear up for further advances with a future distribution hike.

The downside: If things turn sour for Rogers Sugar, investors need to be ready. The current trend line support is at $3.75, a mark that should stand as an exit price at the current $4 level. Typically, Stock Trends likes to use an 8- to 10-per-cent stop-loss objective with its mechanical trading systems, although many trades allow for more volatility. Stock Trends focuses on identifying successful swing trades of about two to three months' duration. Nevertheless, every trade should only be entered with a specific exit strategy.

Skot Kortje has been analyzing stock market trends for 15-years using trend analysis. His Stock Trends indicators have been published by The Globe and Mail since 1995. For more go to http://www.stocktrends.ca/