Canada Markets

Canola Breaks Technical Support

Cliff Jamieson
By  Cliff Jamieson , Canadian Grains Analyst
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Canola closed lower for the fifth time in six sessions, while breaking numerous technical support levels. Stochastic momentum indicators continue to trend lower (second study) while entering over-sold territory below 20%. Spreads continue to reflect a bullish, inverted market (third study). (DTN graphic by Nick Scalise)

Non-commercial or investor selling weighed heavily on canola futures Tuesday. As seen on the attached chart, a break through technical support today led to increased selling along with further losses. The November ended $10.80/metric ton lower at $474.70/mt after hitting an intra-day low of $472.10/mt.

From a technical perspective, various levels of support were broken as price searches for support as harvest nears. Support levels broken include:

1) Last week's low of $480.30/mt (week of August 10);

2) The November contract's 100-day moving average of $480.20/mt, the first close below this moving average since May 1;

3) The 38.2% retracement of the move from the September 2014 low to the July 2015 high on the continuous active chart at $481.60/mt (not shown); and

4) The November weekly chart (not shown) indicates a breach of support from the contract's $479.20/mt weekly low from the week of June 15 and so far is indicating an 11-week low reached this week.

It's interesting to note that since the July 2 $539.40/mt high, breaches of major support have taken place with convincing moves on high volume days, suggesting noncommercial traders are in control. On July 27, the 50-day moving average was breached when the market fell $18.30/mt with daily volume at 22,475 contracts, up from 17,367 contracts the previous day. Fibonacci support was broken at $487.70/mt on August 12 with a $26/mt move lower, with volume at 29,100 mt, up from the previous day's 10,772. Today's move broke various levels of support with a move of $10.80/mt, with the November volume reported at $17,223, up from yesterday's volume of 7,606 contracts.

Commercial traders remain bullish with spreads remaining in inverted territory, as indicated on the third study (each futures month trading higher than the one that follows) which is the case through November 2016. There remain bullish signals coming from both the global rapeseed balance sheet as well as Canada's domestic canola situation.

At the same time, investors are spooked with spill-over selling coming from the U.S. soybean market, growing concerns of challenges facing other commodity markets and the potential of weakening demand from countries such as China, whose equity market closed 6% lower on Tuesday.

The first potential technical support level to watch is $471.70/mt, the 50% retracement of the move from the December 2014 low on the November contract to the July high. Today's low came within $.40/mt of testing this level. The next potential level of support is seen at $463.70/mt, which represents the 50% retracement of the move from the September low to the December high, as seen on the continuous active chart (not shown). Below this level is the 200-day moving average at $457.90/mt and the 61.8% retracement of the move from the November contract's December low to the July high at $455.70/mt.

Statistics Canada will release its first look at the 2015 yield potential on Friday.

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