After closing at a recent low of $604 per metric tonne, a downward move which began with the release of the March 28 USDA report, May canola has had three consecutive days with higher moves, lifting prices $19.10/mt above the recent low.
Today's move broke through the resistance and closed above the contract's 50-day moving average at $622.50/mt. Today's rally also took price levels above the 20-day moving average, at $623.70/mt, although prices failed to hold above this level.
P[L1] D[0x0] M[300x250] OOP[F] ADUNIT T
Another level of resistance breached was the 50% retracement of the most recent downtrend from the March high of $639.30/mt to the April low of $604/mt, which is at $621.60/mt. The high of the session, at $625.40, came just shy of testing the 61.8% retracement level at $625.80/mt, which is the next upside target.
This is a period of seasonal strength for canola, with prices gaining approximately 3.5% from the second week of April to the seasonal high in June, as seen on the five-year seasonal index chart (not shown). Using that logic would suggest a potential move that could once again come close to challenging the contract high for the May contract at $644.70/mt.
Weekly stochastic indicators (not shown), which provide a measure of market momentum and ultimately the actions of buyers and sellers, actually reached a bearish cross-over while in the over-bought area of the chart on March 25 and have trended lower into neutral territory since, although it appears that these indicators are poised to turn higher on upward momentum.
One additional sign pointing towards a continued bullish old crop situation is seen in the old-crop/new-crop spread, or the July/November spread. Movements in this spread signal the bullishness (or bearishness) of the old crop situation relative to that of new crop. After hitting a recent high of $57.50/mt in mid-March, the spread weakened, testing its 38.2% retracement of its rally from its January low, at $47.87/mt. The spread has since shown life, increasing $3.40/mt in today's trade to close at $52.30/mt.
Moves in this spread are sending the signal that old crop should be sold against old crop futures, despite the fact that there will be offers crafted against the November futures.
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Cliff Jamieson can be reached at email@example.com
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