Canada Markets

January Canola Faces Technical Weakness

Cliff Jamieson
By  Cliff Jamieson , Canadian Grains Analyst
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January canola reached its lowest level seen in over three weeks Tuesday, while ending below the 61.8% retracement of the move from the September low to October high, which could lead to a continued move lower. The two lower studies highlight the most recent CFTC data that shows noncommercial traders of canola (blue bars) following noncommercial traders of soybean oil (red bars) from a bearish net short position to a bullish net-long position as of Oct. 16. (DTN ProphetX chart)

January canola is showing weak technical signals this week, reaching a high of $499.90 per metric ton (mt) on Tuesday, while ending $3.30/mt lower at $496.30/mt, its second straight daily decline while slipping further below major moving averages. Tuesday's trade saw the January contract dip below the 61.8% retracement of the move from the September low to the October high, while setting the stage for a potential further slide to test the September low of $490/mt. It is interesting to note that the nearby November soybean contract found support at the 50% retracement of the same move this session.

Noncommercial selling seemed behind the move lower over much of Tuesday's session. It is interesting to note that the most recent CFTC data as of Oct. 16 shows investors, or noncommercial traders, of canola (blue bars on the third study) moving from a bearish net-short to a bullish net-long position of 1,352 contracts, which is identical to the move seen in soybean oil data, as seen in the red bars of the lower study. Investors in both markets may be questioning this bullish move and a move back into net-short territory could continue to weigh on prices.

Over the past eight weeks, the January contract has held within an $18.80/mt trading range, while Tuesday's close is in the lower one-half of this range.

The brown line in the second study points to the Jan/March spread, which signals the actions of commercial traders. This spread remained neutral while even pointed to supportive commercial buying over much of this session, although weakened by the end of the session. Over the past two days, this spread has weakened $0.40/mt to minus $7.40/mt, a sign that the continued harvest activity has weighed on commercial sentiment.

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

Follow Cliff on Twitter @CliffJamieson

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LeeFarms
10/24/2018 | 9:56 AM CDT
Interesting, and a little frustrating, that the harvest delays haven't led to a bump in prices.