From the daily high on September 14 of $657.50/mt through to the daily low on November 13 of $570.60/mt, canola retraced 100% of the gains achieved since June 18, which was approximately the time the U.S. Midwest drought began to take shape. The market's low on November 13th was $570.60/mt which was also a key technical support level as it was the 50% retracement of a longer-term uptrend in canola, from a $483.60/mt low the week of November 21, 2011, to the $657.50 high reached the week of September 10.
Today, a number of positive chart developments have taken place. The daily chart indicates today's close at $592 per metric tonne, breaching the resistance of its 20-day moving average of $590.90/mt, after trading well below this moving-average all month. Should futures maintain current strength, this moving average may not only be pulled higher but may also act as future support.
Today's trade has also broken through the resistance of the 23.6% retracement of the downtrend which began with the September high of $657.50/mt and concluded with the $570.60 low on November 13. This resistance level is found at $591.10/mt.
After moving sideways for a 10-day period within the over-sold region of the chart, daily stochastic indicators (circled in Stack 2) are trending higher in the middle of the neutral territory with no sign of rolling over.
Today's trading range also filled a gap which was previously left unfilled on its November 13 sudden downside move. There is perhaps no significance of this particular move as far as forecasting goes.
According to the daily chart, upside resistance may be found at the contract's 50-day moving average of $602.70/mt while the 38.2% retracement of the September to November downtrend at $603.80/mt may also act as resistance should prices continue to rise.
The January weekly chart (not shown) indicates support at the 50-week moving average, which is currently at $580.10 and trending higher. The last two weekly closes were slightly below this moving average, the first time since late February.
January futures closed near the top of its daily trading range today as well as near the top of its weekly range generated over the past two trading sessions, also a sign of technical strength.
While palm oil stocks continue to grow in Malaysia, reports today suggested that stocks within China were currently at 800,000 mt and expected to grow to a million metric tonnes by the end of the year. While palm oil trades hundreds of dollars per tonne below the price soybean oil, January canola closed at a $62.30/mt premium to January soybeans.
Cliff can be reached at email@example.com
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