Canada Markets

Potentially Troubling Signals on Vegetable Oil Charts

Cliff Jamieson
By  Cliff Jamieson , Canadian Grains Analyst
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Both the continuous active soybean oil chart and the continuous active crude palm oil chart are on the verge of testing the 67% retracement of their respective August 2015 to December 2016 uptrends seen on the monthly chart. The monthly noncommercial net futures position shows investors holding a bearish net-short position in April (lower study), which is a rare occurrence. (DTN ProphetX chart)

While both July soybean oil and July crude palm oil on the Bursa Malaysia Exchange closed higher on Wednesday, long-term charts show reason for concern with possible implications for canola trade going forward.

As seen on the upper study of the continuous active monthly chart for soybean oil, Tuesday's low of 30.15 cents came close to a near-test of the 67% retracement of the long-term uptrend from the August 2015 low to the December 2016 high, calculated at 29.87 cents.

A breach of this level could result in further technical selling, although it is important to note that stochastic momentum indicators on the daily, weekly and monthly chart are already in oversold territory that could slow further noncommercial selling.

As seen on the purple bars of the histogram on the lower study, the most recent CFTC data as of April 24 shows noncommercial traders holding a net-short futures position in soybean oil futures of 90 contracts, which also became the close for the monthly chart as seen on the attached chart. This is only the fourth weekly net-short reported in the past year, while is also the fourth net-short position held on the monthly chart in more than four years. The speculative trade is struggling with the long side of the soybean oil market.

The middle chart shows the continuous active crude palm oil contract on Malaysia's Bursa Exchange. This chart is showing close similarities to the soybean oil chart. While Tuesday's low came dangerously closed to a test of the recent lows reached in both March and April, this chart also points to price holding just above the 67% retracement of the move from the August 2015 low to the December 2016 high, calculated at 2310 ringgits, Malaysia's local currency.

Prices on palm oil's daily and weekly chart are also pointing to a move into oversold territory that could act to slow technical selling. Traders are reported to be in a holding pattern ahead of next week's official fundamental data release, with a focus on production.

With DTN's Five-Year Seasonal Index showing that we are a few short weeks away from the seasonal high reached on average during the past five years, a breakdown in either soybean oil or palm oil below this 67% retracement could be viewed as a warning sign.


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