Canada Markets

November Canola Signaling a Possible Reversal

Cliff Jamieson
By  Cliff Jamieson , Canadian Grains Analyst
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The November canola daily chart is pointing to a possible inverted head-and-shoulders reversal pattern, with this week's trade forming what could be the right shoulder of the pattern. A break above the neckline at $504.50/metric ton is needed to signal the completion of the pattern and a continued move higher. (DTN ProphetX chart)

Thanks to DTN Contributing Analyst Tregg Cronin, Wednesday morning comments pointed to a potential bottoming pattern on the November canola chart, an inverse head and shoulders pattern. As seen on the attached chart, the left shoulder was created at $487.30/$487.40/metric ton on Aug. 28-29. The head of the pattern is created with a low reached on Sept. 18 at $483.50/mt, which found support near the lows reached in July. It was not the most bullish of changes in direction, with the stochastic momentum indicators pointing to a crossover and change in direction in the neutral region of the chart, or above 20%.

The November contract reached a high of $503.60/mt on Oct. 9, only to retrace to a potential right shoulder at $491.20/mt on Oct. 16. This level also happens to be the 61.8% retracement of the move from the September low to October high. Wednesday's trade consolidated within Tuesday's trading range as the market shows signs of indecision.

Daily volume may support the formation of the pattern, with daily volume seen at increased levels on the right side of the pattern. The two highest daily volumes recorded over the life of the November contract are seen on Sept. 28 at 28,439 contracts with the second highest seen on Oct. 15 at 23,075 contracts.

Confirmation of the pattern would require a return to the neckline, the upward-sloping black line, with a break above this level at $504.50/mt on high volume a bullish reversal signal. The measuring ability of this pattern would suggest a move higher from the neckline that equates to the distance from the head of the pattern to the neckline, or in this case, a distance of $18.20/mt. This would suggest a potential target of $522.70/mt, a level within striking distance of the contract high at $528/mt.


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