Canada Markets

It may be a toss-up which canola contract to focus on these days, with companies split between pricing against the March and the May contracts, given the inverse between the two (March trading over the May). The May future has been chosen as the focus of this exercise.

The May canola contract may have shown troubling signs in Wednesday's session, with overnight gains given up and a final close which was $9.70/mt lower at $445.40/mt, its lowest close in seven sessions. Yesterday's trading bar on the daily chart indicates a doji symbol on the Japanese candlestick chart, which appears as a cross where the day's open and close are identical, or in this case, almost identical. Although this symbol represents a day of indecision or balance between buying and selling interests, this particular symbol could be viewed as bearish given the close at the lower end of the day's trading range. In a case such as this, the doji symbol can indicate a change in trend. Note that in the three days prior to this trading day, buying interest waned as gains ranged from $3.60/mt on Jan. 22 to $2.20/mt in Jan. 23 and $.30/mt on Jan. 24.

Today's move lower broke through the resistance of the May contract's 20-day moving average at $446.90/mt as well as the contract's 200-day moving average at $449.20/mt after breaking above this resistance only four sessions ago. Potential support may be seen below at the contract's 50-day moving average found at $437.50/mt.

The middle study indicates a bearish cross-over of momentum indicators while in the over-bought region of the chart (above 80%). Perhaps even more troubling is the same bearish cross-over which is seen in the longer-term intermediate or weekly chart. This could be signaling the end of the uptrend which has been in place since the Sept. 22 low of $408.10/mt was reached.

The lower study indicates weakening spreads, dictated by the actions of the commercial trade which is indicating a waning bullish sentiment. While both spreads remain in inverted territory, with each contract trading above the one that follows, the March/May inverse has weakened $1.50/mt this week while the May/July has weakened $2.80/mt this week.

Weakness in soybean oil trade could be canola's nemesis, despite support from the falling Canadian dollar. Since Jan. 16, March soybean oil has fallen 3.05 cents/lb or 9% in total, breaking out of trading range traded over almost the past 24 weeks. The most recent CFTC data shows non-commercial traders increasing their net-long position in soybean oil contracts for the fifth consecutive week to a net-long of 79,365 contracts as of Jan. 20, the largest net-long position held since Feb. 15 2011. A liquidation of this position could be viewed as a risk to the canola market.

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

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