Good close this afternoon on a Bullish Key Reversal yesterday and follow thru today after a Bullish StatsCan, which confirmed the light Canadian crop and surprised a few by how light.
It was a good close, but also at an important Fibonacci Retracement level. J-MAS is sold to 55% and comfortable remaining there given Bullish Canola Fundamentals pitted against a Bearish Oilseed Complex that is being pressured by a decent enough Bean harvest and relatively burdensome Palm supplies. Given this uncertainty, we like 50-60% sold here and below is a chart and playbook for how to catch-up if behind, or to further advance sales if you feel more Bearish than we do. Please revisit this post for Deferred Delivery premiums/discounts if looking to make sales in Canola, Durum or Peas as there are strong deferred options outpacing spot pricing for the first time in a while..
The following is a chart off CommodityCharts.com edited with analysis by us. Click it for full size.
38.2% is the first and most important Retracement Level any counter-trend must take out – in my experience the other levels are noise and while good sales points, are not nearly as critical an inflection point for what the market is trying to tell us.
A trend will almost always continue to test the 38% level as it works it’s way higher or lower and the trend must be considered completely intact until a counter-trend move breaches this important level. It is a precarious marketing area because if the level holds without a breach and you fail to sell, the next leg will often be much lower and likely at a similar acceleration as the previous trend. While the trend is not guaranteed to change on a 38.2% breach, it usually softens the strength of the current trend and a bottom is often near. Also, the 50% and 61.8% levels are not especially far above this level and your upside may be limited if you chose not to sell and were rewarded by a 38.2% breach – but you are playing with fire on the downside.
Catchup Recommendations: At today’s close just below 38.2% retracement at $608 (and with very attractive basis levels), a $13.56 bid is on the table – almost exactly where we went to 55%. As mentioned, this is a level that will be tested often in a downtrend and the trend must be considered fully intact until it is breached – we had a good Technical signal yesterday and a good Fundamental story today, but Technically, the market has not yet broken downtrend and you need to consider this – as good as many are feeling about the market today – us included. This level is a sharp, double-edged sword because if you sell and it breaches, you have sold at a lower level than what may lay ahead, but if you don’t sell, and the level holds, there remains tremendous downside – and the potential for something negative being in play that none of us have counted on.
A previously un-breached 38.2% retracement level will often be looked at later as the one place where the ball was in our court to have made a right move with the best information available – if you think such perfect information ever exists at the top, you are naive in thinking so, but at this retracement level both the bulls and bears are granting hints.
Playbook – J-MAS believes in the fundamentals of the Canola story but can not argue with the attractive basis levels propping up prices today, and would consider adding 15% to sales to get caught up. If you were below 40% sold to this point already, 15% is far enough as you have obviously been more Bullish than us to date and/or have a more solid risk-tolerance.
If you choose not to sell, continue to watch the 609 level closely for this all-important breach. If we breach, then a sigh of relieve should be felt in the pits and we should move immediately up to the fake Fib 50% level and likely move right to 61.8. Here you will also want to consider a sale, though it should be a less critical choice as both the upside and downside should be muted. Downside should be muted as the market is telling us that while the current trend may not have changed, it’s pace has. Upside is muted because we next must make the all important “New High” test before a rally can resume and because of some decent chart damage it will take a strong and previously unknown Fundamental catalyst to break us through and J-MAS will be selling again near previous highs most likely – though we do have a few “catalysts” we believe will move to the fore.
Call or reply with questions. You’re main job today is to watch 38.2% as it’s the volatile number and do something if you fear it’s move one way or the other. The bears and bulls are both granting you hints at this level, and no where else on a chart do they “both” do so quite as loudly.