Canada Markets

November 2019 Canola Searching for Direction

Cliff Jamieson
By  Cliff Jamieson , Canadian Grains Analyst
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The November 2019 canola chart shows price holding within a symmetrical triangle pattern, with price struggling below $500/metric ton while nearing a potential breakout in one direction or the other. The middle study shows the November 2019/January 2020 spread weakening this session, while the lower study points to a growing bearish net-short position held by noncommercial traders. (DTN ProphetX chart)

Since reaching the July 5 high of $517.60/metric ton, the November 2019 canola contract has traded within a symmetrical triangle pattern, close to a breakout either to the upside, with current trendline resistance at $498.80/mt, or the downside where current support lies at the upward sloping trendline at$492.70/mt. A further level of resistance lies at $498.50/mt, the contract's 100-day moving average, which is in a steep downtrend running parallel to the downward sloping resistance line.

Technical analysis theory would suggest that breakouts take place with the most force while in the area represented by the distance of 50% to 75% of the horizontal distance from the base of the triangle to the apex. This range has already been exceeded, suggesting the move will not be an explosive one. As well, theory also points to a potential move that is equivalent to the vertical distance of the base. This would point to a potential upside target of $537.50/mt given a move higher and a downside target of $454/mt in the event of a downside move.

While Monday's move resulted in a modest gain of $.70/mt, this was likely tied to noncommercial short covering. The purple line in the middle study shows the November 2019/January 2020 spread has widened or weakened $.50/mt to minus $5.00/mt this session, a fresh low seen for the life of the contract, pointing to a bearish response on the part of the commercial trade. This is the weakest Nov/Jan spread seen over the past five years on this date, while $2/mt weaker than the five-year average on this date.

The histogram on the lower study points to a growing net-short noncommercial futures position, now at the largest level reported since this data was made available in late July at 44,504 contracts.

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