January canola broke down below support at $490/metric ton in Tuesday's trade, closing $1.60/mt lower, at $488.60/mt. This follows two dips below $490/mt in the past three sessions, only to recover and close above $490 each time. Looking back on the January chart, the price stalled at a low of $491/mt in the month of July while reaching a low of $490/mt in September, placing importance on this price as a level of potential support.
Given the break below support this session, a move that followed the direction of global oilseeds and vegetable oils on Tuesday, we turn to the continuous active chart for indications of where the next level of support lies.
The long-term chart shows range-bound trade is largely the norm for canola. Between January 2015 and October 2016, the continuous chart shows a range of $109.10/mt traded, between a February 2016 low of $435.50/mt and a May 2016 high of $544.60/mt. Since then, the range has narrowed to $70.80/mt, from an October 2016 low of $469.80/mt to a May 2018 high of $539.90/mt.
Weekly lows during the latter period point to two distinct levels of potential support. The first range of support is found in the $482.50-to-$486 range, which is made up of weekly lows since July 2017, while the next level is found in the $469.10/mt -to-$473.70/mt range, consisting of weekly lows over the October 2016-through-June 2017 period.
As seen on the attached chart, the 38.2% retracement of the move from the September 2014 low to May 2016 high is found at $484.80/mt (red horizontal line), a level that has also successfully supported prices since October 2016. The next retracement lines would suggest a breach of this area could lead to a further move to the 50% retracement line at $466.30/mt.
The blue line on the first study points to the January/July futures spread, which finished at minus $17.20/mt on Tuesday. While this spread narrowed slightly on Tuesday, a sign of commercial buying interest, this is the weakest spread shown for this date since October 2013, when the January 2014/July 2014 spread was shown at minus $20.40/mt, a year when ending stocks increased from 588,000 mt in 2012/13 to 3 million metric tons in 2013/14.
The blue bars of the histogram on the lower study shows the net futures position for noncommercial traders. As of Oct. 23 data, this group increased their bullish net-long position to 5,298 contracts. This move was counter to the move made by this same group in soybean, soybean oil and soymeal trade. This week's activity would suggest that this group has since reconsidered, with concerns easing as the Prairies' harvest nears an end. Tuesday's January contract volume is reported at 15,345 contracts, the highest daily trade seen over the life of the contract.
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Cliff Jamieson can be reached at email@example.com
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