November canola failed to crack resistance in recent days, potentially bringing the short-term rally which began Aug. 6 at $472.40 per metric tonne to an end. As seen on the attached daily chart for the November contract, the canola price has failed to close above $512.40/mt on each of the past three days, which is the 38.2% Fibonacci retracement of the move from $577.20/mt on June 3 to the $472.40/mt contract low on August 6. Yesterday also saw a failed test of trendline resistance at yesterday's high of $519.80, which is noted by the downward-sloping line from the June high of $577.20/mt.
The middle study shows how short-term daily momentum indicators are rolling over while in over-bought territory. While perhaps not noticeable, the faster-moving blue line has crossed through the slower-moving red line above 80, which represents the over-bought line. This is presenting a short-term sell-signal, or in other words, an indication of a move lower. At the same time, weekly stochastics as seen on the weekly chart (not shown) continue to trend higher as the weekly trend remains in place at present.
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While there are perhaps reasons to be bearish short-term with a potential record crop on the way, the lower study on the chart shows potential concern exists over available supplies later in the crop year, as evidenced by narrowing spreads seen in the March/May and May/July relationships. The March/May hit a low of minus $6.30/mt (July above the May) on August 13, while closing at $4.60/mt in today's trade. The May/July spread reached a low of minus $5.70/mt on August 14, while closing at minus $4.80 in today's session. This is a sign that further out, there is a less bearish sentiment throughout the market.
Despite the fact that a large crop is on the way, total supplies this crop year will fall far short of 2011/12 when there was 16.9 mmt of available supplies, while exports totaled 8.7 mmt and domestic use totaled 7.5 mmt, for a total disappearance of 16.2 mmt. Since that time, domestic capacity has been added to put further pressure on available supplies. The trend in these spreads late in the crop year may tell an interesting story as it unfolds.
Technical resistance for canola remains at $512.40/mt, the 38.2% retracement level, then at $518.50/mt which is trendline resistance and then the 50-day moving average, shown by the pink line on the chart at $521.10/mt. Important technical support will be found at the contract's 20-day moving average at $494.40/mt, as shown by the blue line.
Cliff Jamieson can be reached at email@example.com
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