Canada Markets

Canola trade this past Monday saw the November future break above the downward-sloping intermediate trendline which began with the February high of $577.60 per metric tonne, as seen on the attached chart. Trendline resistance at $556.70/mt failed to hold prices. In the same move higher, the resistance from the 61.8% retracement of the downtrend from the February high of $577.60/mt to the May low of $528.50/mt was also breached at $558.80/mt.

Tuesday's canola trade got caught in the sharp move higher for November soybeans, which closed the session 40 1/4 cents higher after a three-day holiday weekend and concerns that weekend moisture over the U.S. Midwest was adding to planting delays for the oilseed. Tuesday's canola trade extended gains over resistance, with a close of $569.80/mt, close to the session high of $572/mt.

Markets ran out of steam Wednesday as November canola opened at $569.80/mt during the Tuesday evening open of the overnight trade and traded in negative territory most of the session, although moving higher in the final minutes of trade to close at $570.10/mt, up just $.30/mt. Today's close, within $1.90/mt of the upper end of this week's trading range, may be an indicator of market strength, although several indicators point to the possibility that this move higher may not last.

The following concerns are noted:

-- Volume: technical analysis theory would suggest that breakouts through resistance should take place on days of high volume in order to be convincing. As stated in John Murphy's Technical Analysis of Futures Markets, "The level of volume measures the intensity or urgency behind the price move." Monday's move through resistance took place on the day of the U.S. Memorial Day holiday, when volume was light for obvious reasons. Daily volume, as noted on the green bars of the middle study, was 1,019 contracts in the November, as compared to 6,885 contracts the previous day and 14,447 contracts the day after.

-- Spreads: Forward spreads have shown weakness in this week's trade. The Nov/Jan spread has weakened from a $.30/mt carry on Monday (Jan trading $.30/mt over the Nov) to a close of $1.90/mt carry in Wednesday's trade, indicating a slowly growing bearishness on the part of commercial users.

-- Weekly Stochastics: While not shown on this chart, the weekly stochastic indicators are trending higher in neutral territory, a sign of continuing upward momentum. At the same time, the change in direction marked by the cross-over of the faster moving %k line and the slower moving %D line took place above 20, a line which separates the neutral zone from the over-sold region of the chart. A more convincing change in trend would be indicated when this cross-over takes place below 20, or within the over-sold region of the chart.

-- Wednesday's Trading Bar: Wednesday's trading bar is represented by an inside bar, where Wednesday's trading range is entirely engulfed by the trading range of Tuesday's trade. This can be viewed as a balance between buyers and sellers, but often leads to a change in market direction.

-- U.S. Soybean Fundamentals: While canola is recently taking its direction from the soybean market, current delays in planting may be negative for new-crop soybeans. Should time run out for corn planting, many of these acres may be switched to soybeans. Confirming this, in the May 28 issue of farmDoc Daily from the University of Illinois, Darrel Good noted that in five of the latest-planted crops in the U.S in the 1980 to 2012 period, four of those years resulted in higher-planted acres than the March intentions. Also due to the fact that yields are correlated more to July and August weather, the late-planted crops studied tended to lead to yields that largely revolved one bushel/acre higher or lower than trendline yield, with two of the five years achieving trendline yield. Perhaps the most obvious example of a weak market structure in soybeans is today's weakness in the August/September spread as well as the September/November spread, a sign that the bullish sentiments of commercial traders are weakening.

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

(AG)

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