Canada Markets

Palm oil warning signs?

Cliff Jamieson
By  Cliff Jamieson , Canadian Grains Analyst
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March palm oil has struggled below December highs, ending lower for the second straight day, posting a bearish outside-day trading bar and ending below the contract's 20-day moving average (red line). The upward-sloping blue line could be viewed as a neckline for a head and shoulders pattern which could lead to a market reversal if breached. (DTN graphic by Nick Scalise)

Palm oil futures have been the major driver within the global oilseed markets, although the market is showing signs of fatigue in recent trade, which could be viewed as a concern for oilseed trade ahead. As seen on the March 2017 chart for Malaysian palm oil, price has advanced 45.3% from the July 13 low to the Dec. 16/19 double top formed, which reflected the highest trade since May 2012. Daily commentary provided by Dow Jones flip-flops on a regular basis from fears of weak production tied to the 2016 La Nina event to concerns of weak demand, with a focus on a sharp reduction in India's imports.

Needless to say, there has been a mix of both bullish and bearish technical signals in recent weeks. First the bullish indicators. There was a bullish gap higher on Nov. 11, Nov. 21, Nov. 24, Dec. 27 and Jan. 3. Bearish gaps lower are also seen on Nov. 14, Dec. 8, Dec. 9 and Dec. 23, as buyers and sellers fight for control. The contract reached a double top on Dec. 16 and Dec. 19 at 3,202 ringgits/mt, while finishing sharply lower on the 19th after testing the previous day's high. Jan. 5 trade points to a bearish outside-day trading bar, significantly engulfing the previous day's trading range. At the same time, Thursday's close ended below the contract's 20-day moving average (red line).

The upward-sloping blue line represents a neckline for what could be a head and shoulders pattern. The market rallied to highs on Dec. 6 and 7, while retreating only to reach higher-highs on Dec. 16 and 19. On each of these two days, this move stalled at 3,202 ringgits, the local currency, to reach a double top which was followed by closes near the lower-end of the day's trading range as noncommercial selling pressure determined the direction of the market. The market then retreated to a Dec. 23 low, only to stall in moves higher on Dec. 28 and Jan. 3, which forms the right shoulder of the pattern.

A breach of the neckline could signal a reversal in this market. A move below this support line could suggest a further move lower, normally estimated by a move which is equal to the vertical distance from the neckline to the top of the head of the pattern. This would suggest a move of 197 ringgits lower, to 2,837 ringgits, which reflects an 11.4% drop from the December high. This would also result in a move below the 33% retracement of the move from the July low to the December high, which could trigger further selling.

As seen in the second study, short-term momentum has turned lower while the market has struggled to sustain bullish momentum since early December.

The lower study shows weakening spreads since the beginning of the month, a bearish sign of commercial selling.

Cliff Jamieson can be reached at cliff.jamieson@dtn.com

Follow Cliff Jamieson on Twitter @CliffJamieson

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(ES)

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DJGREENBANK@GMAIL.COM
1/6/2017 | 1:11 AM CST
So r u saying look out canola