Canada Markets

Friday's Canola Trade Posts a Bearish Move

Cliff Jamieson
By  Cliff Jamieson , Canadian Grains Analyst
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May canola posted a bearish outside day Friday, with Friday's trading range engulfing Thursday's trading range, a signal of exhaustion in a trend. The second study indicates a bearish crossover of momentum indicators while in overbought territory, while the third study indicates this bearish move in Friday's market took place on relatively high volume. The fourth study indicates a weakening in the May/July carry Friday, a sign of commercial buying interest. (DTN graphic)

They say that grain prices travel up the escalator and down the elevator, which may help describe Friday's move in canola. After a strong showing which has seen the May canola contract close higher over eight consecutive days, the daily chart posted a bearish outside day to end $7 per metric tonne lower at $450.20/mt.

The outside day is indicated by Friday's trading range of $11.20/mt engulfing the $8.20/mt trading range witnessed in Thursday's trade, while at the same time, the close was near the lower end of Friday's trading range while volume was high relative to the past several months' volume, which further defines the trading pattern. The outside bar is a signal of exhaustion in a rally, and would indicate that the move which has seen canola gain 14% from its low on Feb. 13 to Friday's high may be nearing an end.

The second study indicates a bearish crossover of the faster %K line over the slower-moving %D stochastic indicator while in overbought territory (above 80%). Noncommercial traders become jittery in this situation, which can lead to a sudden sell-off. The lower study indicates a gradual weakening of the May/July carry to minus $9.40/mt, a sign of light supportive buying from the commercial side and a further indication of noncommercial or investor selling.

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A further concern over Friday's move is that all of this happened while the Canadian dollar was posting nearly a 1-cent drop against its U.S. counterpart, an event that may have limited canola's losses this session.

Canadian Oilseed Processors Association (COPA) data indicated a 6.3% increase in domestic canola crush in the most recent week to March 5, although this volume remains below the amount needed this week to stay on track to meet the 7.2 million metric tonne target set by AAFC. Year to date, the domestic crush is almost 252,000 mt below the level required to achieve the annual target.

The Canadian Grain Commission's weekly export data indicated that weekly exports reached a three-week high, although remained well below the weekly volume required to stay on track to meet the 8.1 mmt export target set by AAFC for the crop year. Year to date, exports remain 376,400 mt behind the steady pace needed to meet the annual target.

Canola's trade remains bound between resistance in the $465 to $468 range while support may exist at the 50-day moving average of $436.60/mt.

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(ES)

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