Canada Markets

On Mar 13, I looked at technical weakness in the November 2013 canola futures. March 11 saw futures open $5 above the previous Friday's close, while ending the day $1.80 per metric tonne lower. Tuesday's move extended the losses, crossing below the contract's 20-day moving average, while Wednesday's move took prices lower while crossing below the contract's 50-day moving average on March 13. Total losses for the week were $9.90/mt. Weekly stochastic momentum indicators had turned lower, while the Nov/Jan futures spread was trending lower at $1.50/mt.

This week saw a reversal in the short-term trend for the November futures, as seen on the attached chart. March 18 prices opened lower, reaching an intra-day low of $545.70/mt while trading below the support of both the 100-day and 200-day moving averages. Prices did recover that day, closing unchanged for the session, above support levels. Prices then mounted a rally to close higher each day this week, ending the week $12.60/mt higher at $564.50/mt. Canola traded over a $21.80/mt range this week, closing $3/mt below the upper end of the week's trading range. This was despite November soybeans gaining only 2 3/4 cents on the week.

When one considers the short-term downtrend from $577.60/mt on Feb. 22 to the low reached this week at $545.70/mt on Monday, this week's rally saw prices trade through the resistance from each of the 38.2%, the 50% and the 61.8% retracement levels of the February through March downtrend, although today's gains above the 61.8% retracement level of $565.40/mt failed to hold.

Today's close also saw prices breach a short-term down trend line, which also formed the upper boundary of a symmetrical triangle pattern. This resistance was also roughly at $565.40/mt, which acted to resist a higher close.

There's been a buzz from newswire market reports this week concerning the lingering winter weather on the Prairies along with the possibility of a cooler spring. "There were ideas that planting of the canola crop was already two weeks behind based on current conditions," reported Dow Jones. This information tends to stir the non-commercial traders(speculators).

So where are the mixed signals? Despite this week's rally, there are signs that this move cannot sustain itself.

The first reason for concern is that canola moved counter to the move in soybeans today. November canola gained $.10/mt while November soybeans lost 11 1/2 cents. Over the course of the week, November canola gained $12.60/mt, while November soybeans gained just 2 3/4 cents.

The second reason for concern is that the attempt for prices to break out from the triangle pattern and close above the resistance of $565.40/mt failed. Technical analysts would normally look for a spike in volume in the event of a breakout but this simply did not happen, as indicated in the second study. Watch for the market to potentially retest this resistance next week.

Next, weekly stochastic momentum indicators (not shown) are perhaps not clearly indicative of a strong uptrend. This indicator may take more time to develop.

Last of all, the November/January spread has weakened to a carry of $1.60/mt, down $2.20/mt over the course of this week. While speculative traders are bidding up the market on fears of suggested crop delays, commercial traders are becoming less bullish with the spread weakening from its January high of $4.20/mt (a $4.20/mt inverse) to today's $1.60/mt carry.

With ongoing concerns surrounding the size of the record South American soybean crop along with a potential rebound in U.S. production hanging over the market like a dark cloud, canola is making a valiant attempt to rally which may present pricing opportunities should further attempts to breach resistance fail.

Cliff Jamieson can be reached at cliff.jamieson@telventdtn.com

(AG)

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