Updated Marketing Plan Monday, Technical Tuesday and Sales Rec Wednesday. Big drop for canola captured in the new “Move” in Marketing Plan report, the ugly technicals in the Technical report and the Durum and Flax sales in the Sales Recommendation report. We are letting the market panic, not panicking ourselves. Nothing great on the horizon for Canola due to the burden, but the bottom has not fallen out as one look at the Bean chart will show. Price action for Beans more important over next few days in the wake of a big demand confirming USDA report. Oil component weak or not, Canola can not discount itself to Beans this much without finding new and long-term beneficial demand avenues.
$538 marks an extremely important level. Other resistance levels are important sell points but a 38.2% Fib Retracement level is doubly important. Where normal resistance is a great sell point because it has the potential to mark a top or if broken to the upside, will often act as support and a position can be re-taken on the test of that support with only pennies difference from the previous sell.
But with a Fibonacci resistance level, especially the 38.2% mark, a failure to break through doesn’t just mark a top, it also reaffirms the previous downtrend the market is in and sets up for a leg lower. Where a normal resistance failure likely means a re-test of the lows with a good chance of holding them, a 38.2% failure likely means a new price coming that is substantially lower than the previous lows. See chart below for details on how this particular Fib Retracement was calculated.
In our current market, I believe the Fundamentals have improved enough that the low is in; for this reason I believe that the 38.2% level will be breached and thus $538 will be taken out and a steady move to $560 is very realistic. That is what I believe but until $538 is taken out and confirmed over a 2-3 day period, then we remain in a downtrend. The market will tell us by breaking through $538 that we can more than just believe that $560 is in play, and that even more importantly, a bottom is in.
Watch this level closely: if we breach the level, we can start thinking of $560 Canola ($12.30) but a failure here likely means we go to $480 ($10.60) and whatever we believed about the Fundamentals was false. If the new weather driven Fundamentals are valid, and I believe they are, then the market will tell us that and will take out $538. Price Action is your friend and will tell you what’s important.
A significant rally in Canola will drive an Acre Battle that will be Bullish for all crops we grow.
$534 on the March gives us a spot $11.81 bid into Assiniboia. I’m a small Seller today.
In front of a decently important USDA report tomorrow morning it would be remiss of me not to take the $11.81 that’s in front of us and roll the dice on a good report for just another 10 cents. I therefore will be moving sales up by another 10% today on the spot month contract – moving to 75% sold Canola.
I believe the report will be mildly Bullish and the Charts are certainly in our favour, however risk is present on four fronts: 1) Expectations are for a Bullish report and so limited upside without a strongly Bullish report. 2) Big rains in Argentina are being ignored and could become a focus once report is out of the way. 3) The Outsides are getting overbought and Greece is playing politics – and have a few years of experience on that front. 4) Technically we’ve broken a pennant to the upside, but have not confirmed a takeout of the January highs so any drop here will install a pretty solid double top at an already strong Resistance plane.
Targets out imminently – this note is background on the forthcoming Canola recommendation. All things being equal, if it was not a report day tomorrow, I would not be selling today – hence 10% instead of 15%.
$533 on the March gives us a spot $11.77 bid into Assiniboia.
$533 was the high set on Jan 9th prior to the USDA on the 12th and a level we have not seen otherwise since Nov 16. $538 marks 38.2 Fib Retracement and while that has been my medium term target since late November, we must respect that 533 is possibly close enough especially in front of a USDA report on Thursday that many are calling for to be Bullish (and thus it had better be Bullish or we likely go lower, leaving a solid double top in place).
If adverse weather in E. Europe, S.American and locally in the Prairies continues, there is potential still to test $550 – 560, so I am only a seller of 50% of my remaining bushels in the 533-538 range, and will ponder the velocity of the move to $550 on the remaining tonnes if it were to occur.
While a breach of $533 should provide a spring board for Fund entry and a nice support level, $538 ($11.88) is a significant resistance level and a critical point in breaking (or more importantly – maintaining) the downtrend. A failure at $538 could result in a test of the $500 lows and a good chance of seeing $480 March or May futures ($10.55 Canola)
Bottom Line – Good sell points ahead but beware Thursday’s USDA. You should not exit the next 2-10 days without getting yourself to 75% Old Crop and possibly as high as 35% New Crop or any combination of 100% Old & New Crop. More on that in this afternoon’s Targets.