Canada Markets

The daily chart for December oats shows that prices have consolidated in recent sessions, a sign of a pause during a sharp move higher such as that seen in past days in this market. The two converging trend lines shown on the chart indicate the pattern which is a sign of "controlled profit-taking" during the uptrend, a pattern known as a pennant. The pattern is also verified by the declining volume as seen on the green bars in the lower study on the attached chart.

The significance of this pattern is that it is a reliable indicator of a continued upward move, as long as the lower trend in volume coincides with the pattern, which in this case, is confirmed. The saying goes that flags (and pennants) fly at half mast, indicating that they are normally found at the mid-point of the trend. This leads to the ability of the pattern to be measured in order to determine future targets.

In this particular case, I'll measure from the breakout above the resistance of the 38.2% retracement line, at $3.23 1/4 per bushel, to the top of the pennant pattern at $3.38 1/2/bu. This total move of 15 1/4 cents would then be added to the potential breakout point within the pennant to determine an upside target. Today's move closed above the upper boundary of the pennant pattern, breaking through this short-term resistance at $3.35 1/2/bu. Should prices hold above this level in tomorrow's trade, the upside target would them become this break-out point at $3.35 1/2/bu. plus 15 1/4 cents, for an upside target of $3.50 3/4 cents.

Today's move also resulted in a close above the 61.8% retracement of the August 27 high at $3.56/bu. to the September low of $3.03/bu., which is at $3.35 3/4/bu. Today's close marks the third close in the past four sessions that held above this level. A continued move above this resistance could result in a test of the August high at $3.56/bu.

The December/March spread moved from a 2 1/2-cent carry on Sept. 18 to a high of a 25 1/2-cent inverse on Oct. 18. This is a bullish move indicating strong nearby commercial demand. Seen in the middle study, this spread has turned lower, although remains bullish at 22 cents (December trading over the March). The March/May (not shown) is also trading at a 1 1/4-cent inverse, also bullish.

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

(ES)

© Copyright 2013 DTN/The Progressive Farmer. All rights reserved.