November canola plunged to its lowest level in six weeks in last week's trade, reaching a low of $488.10 per metric ton and closing $18.30/mt lower July 27, while dipping further to $487/mt the following day before closing higher. Interestingly, the move was close to a 50% retracement of the move from the April low of $432/ mt to the July high of $539.40/mt, with the resulting Fibonacci support found at $485.70/mt, just $1.30/mt below last week's low (not shown).
Since reaching the low July 28, the November contract has closed higher for five consecutive days, gaining $15.50/mt or 3.9% to August 4's close of $506/mt. This close was the first close above the November contract's 50-day moving average at $503.90/mt (green line), which may act as support in upcoming trade.
The middle study on the attached chart shows a bullish cross-over of stochastic momentum indicators July 29 while below 20%, with short-term momentum indicators trending higher. Yesterday's trading range tested the 38.2% retracement of the move from the July high to the July low at $507/mt, although failed to hold gains above this level.
Also of interest is the strengthening of the Nov/Jan spread. In the first 28 days of July, this spread traded between a carry of $1.90/mt (Jan trading over the November) and an inverse of $1.00/mt (November trading over the January). This spread has since strengthened from even money July 28 to an inverse of $2.80/mt yesterday, the largest inverse since June 24. This signals bullish commercial buying behavior and is a sign of growing concern surrounding the crop's potential.
Another signal to watch is basis levels. While there is little change in country basis levels in recent weeks, Vancouver cash was reported at $32/mt over the November, a $2/mt improvement from Friday. This basis has been reported flat at $30/mt over the November since June 19 and is worth watching.
Nearby resistance remains at $507/mt, while a sustained moving above this level could result in a further move to $513.20/mt, then again at $519.40/mt. While canola's fundamentals and Canadian dollar weakness will remain supportive for prices, the crop's seasonal factors are negative for prices during this time of year while Monday's activity in the December soybean oil market saw a near test of the contract low reached last January, which may cap any upside potential for the canola market.
Cliff Jamieson can be reached at email@example.com
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