Canada Markets

The $540 Level Remains a Challenge for Canola

Cliff Jamieson
By  Cliff Jamieson , Canadian Grains Analyst
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While the July canola contract reached a fresh contract high in Thursday's trade of $540/metric ton, this brings us to a test of resistance that has posed a challenge for canola on the continuous chart since August 2013. (DTN ProphetX chart)

Earlier this week we looked at canola's seasonal tendencies, with DTN's five-year seasonal chart showing that on average over the past five years, the nearby future turned lower after reaching a high in mid-May. As mentioned, seasonality is just one of six factors monitored for DTN strategies and pinning hopes on seasonality alone could prove a dangerous move. As indicated, a breach of resistance and all bets are off. Which is exactly what happed in Thursday's trade.

The July contract gained $3.80/metric ton on Thursday to close at $539/mt, after reaching a contract high of $540/mt. As seen on the continuous monthly chart, this high has significance for two reasons.

First, the 50% retracement of the move from the July 2012 high to the September 2014 low is found at $539.50/mt. A sustained move above this level could result in a further move to $575.30/mt, the 61.8% retracement of the same downtrend.

Secondly, the $540/mt area of the chart has acted as resistance on the continuous monthly chart since August 2013. Over this period, monthly highs ranged from $225.30 to $568.90/mt in 16 of the 57 months. Narrowing this range further, monthly highs ranging from $534/mt to $544.90/mt were reported in six months over the period discussed.

Over this period, the monthly close on the continuous chart ended the month above $540/mt in only two months. In June 2015, the monthly close was reported at $542.60/mt, only to follow with a $40.60/mt drop in July. In June 2017, the monthly close is reported at $551.30/mt, only to follow with a $42.70/mt drop in July, while showing a bearish outside reversal bar on the continuous chart.

While there remains a few days in May trade, the continuous chart points to current May trade consolidating within the April trading range in sideways trade overall. Buyers may not be willing to see this market move higher, while the opposite can be said of sellers as both parties search for direction.

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