Canada Markets

The nearby January canola contract showed increased volatility in Wednesday's trade, flashing both bullish and bearish technical signals. In the end, sellers remained in control, with commercial selling weighing on the market.

With the canola market closed on Tuesday in recognition of Canada's Remembrance Day while the soybean market gained 38 1/4 cents (January contract), last evening's open resulted in a bullish gap higher in trade in the January canola contract. The open of $441.60/mt was well above Monday's high of $438.00/mt. The move also saw trade move through chart resistance, with $437.90/mt the 38.2% retracement of the move from the April high of $507.50/mt to the September low of $394.80/mt. Additional resistance could also be found at last week's high of $440.80/mt.

Prices would not hold at these levels, as canola followed the turn of events seen in the soy complex. The January contract ended the day at $429.60/mt, $7/mt lower and near the lower end of the $17.30/mt trading range traded in today's session. As you can see on the attached chart, today's trading bar forms a bearish outside day, with today's trading range or bar engulfing that seen on the previous day, with a close near the lower end of the session. A further look indicates today's range engulfing the trading range seen in trade Thursday, Friday and Monday's trade. This bar could signal a reversal in direction.

The middle study is another potential sign of a change in direction. The stochastic momentum indicators have been over-bought and have largely drifted sideways since late October. This has left the market susceptible to a sudden sell-off and change in direction, such as seen in today's trade. Momentum on the daily chart now appears to be lower.

While the spreads seen on the lower chart are not entirely updated at this time, the point to note is that the Jan/March spread, the March/May and the May/July have all moved back into a weak carry, with each future trading lower the one that follows. The Jan/March widened $2.20/mt to minus $.90/mt (March trading over the January), after reaching an inverse of $3.90/mt (January trading over the March) on November 5. The March/May widened $1.30/mt to minus $.40/mt and the May/July widened $.80/mt to minus $.70/mt. This move represents an increase in commercial selling.

Today's Vancouver cash basis, reported daily by the ICE Exchange, was reported to have widened $8/mt to $40/mt over the January future, the weakest basis seen against the front-month contract since October 7.

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

Follow Cliff Jamieson on Twitter @CliffJamieson

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