Canada Markets

Canola Holds at Retracement Support

Cliff Jamieson
By  Cliff Jamieson , Canadian Grains Analyst
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Canola closed lower for the fourth consecutive week, although held above lows reached in August as well as retracement support on the weekly chart. This week's close held above the 67% retracement line at $489.60/mt for the ninth consecutive week. (DTN ProphetX chart)

November canola ended $1/mt higher on Friday at $490.90/mt, its first higher close in four sessions. As seen on the attached weekly chart, the November has closed lower in each of the past four weeks, while this contract has shed $20/mt or 3.9% over this period. Trade has held within a $28.70/mt range over the past nine weeks, while ending this week in the lower one-third of this range.

Over the past nine weeks, each successive weekly close remained above the 67% retracement level of the move from the August 2017 low of $470.70/metric ton to the May high of $528/mt, calculated at $489.60/mt. In four of the nine weeks, including the current week, trade dipped below this level but in each case recovered to close higher.

The first study on the attached chart shows stochastic momentum indicators in a mostly sideways move, struggling to reach over-sold territory below 20% and build a base from which to rally.

Despite uncertainty surrounding production given challenges facing harvest in the northwestern Prairies, the Nov/Jan spread weakened $.60/mt this week to minus $6.70/mt (January trading over the November, second study) a bearish response on the part of commercial traders but could be viewed as a neutral sentiment overall in relation to the full cost of carry.

A breach of retracement support at $489.60/mt could result in a further slide to test the July low of $484.20/mt while a further slide to $478/mt, weekly lows reached in August/September 2017, which could be the next target should July lows fail to hold.

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