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Swift's Market Comments

My Ah-ha moment notes a ho-hum economy

My Ah-ha moment notes a ho-hum economy
All the macro-economic negatives are tough to overcome, but feeders are suggesting they could break out to higher prices.

 

I may or may not have had an "Ah-ha" moment this morning on why traders remain so pessimistic on the future of beef.

There are several factors in the larger point I'm getting at.

The ADP job report was out this morning and showed good strength in the employment sector. The government continues to tell us that the US is running at approximately 5% unemployment. Does that 5% make that much difference? Apparently it does. That is because that 5% is perceived as a significantly lesser pool of individuals needing or wanting a job than in the past. The idea of underemployment is also factored in as well.

Today, the purple oscillator has begun trading above the zero line. Note on the chart the trend of setting higher negative readings as prices made new lows. This divergence is significant in my analysis and it is perceived as suggesting a bottom is in for a while.

So, if only 5% of the available work force is not working, it must suggest that if this is the best of times in employment, what could be better to help consumers buy more beef?

To add insult to injury, with equities remaining at historical highs, money as about as cheap as it can get, and most commodity prices significantly lower to the consumer than in the past five years. This may be considered one of the best times the US has seen.

However, we all know that the equity market rally is predicated upon the stimulus packages and interest rate manipulation. Therefore, built on a faulty foundation.

Low interest rates are not a benefactor to many, as few could obtain the lower end of the rate range when borrowing and receiving the lowest end of the rate range when investing.

Psychology changes too, as if to say, "If things are so bad that we have to have 0% interest rates, how will things get better?"

Then, the benefit of lower retail prices of commodity goods to the consumer is offset dramatically by the increases in health care costs and the decline of income for commodity production businesses.

All in all, the above does not paint a very bullish picture for demand with the anticipation of rising supplies. However, if you recall, I wrote a near identical comment five months ago and to date, nothing has changed.

So, the above comments are in stark contrast to the recent movement of beef and perception of what would be construed as a friendly atmosphere for higher cattle prices. Hence, a potential reason cattle futures are stuck with few wanting to press the downside at such a discount and fewer able to defend a long position.

With all of the above stated, I continue to anticipate August fats to gravitate toward the area around $120.00 to $122.00.

You should also note the slight increase in strength of feeders over fats. Yards may be starting to see empty pens, with movement having been more brisk than anticipated. As demand continues to empty pens at a greater rate than anticipated, yards may begin to want to add some inventory or at least own futures at the even basis.

The wave count remains undeterminable at this time. With the contracting, downward sloping wedge reflecting a very irregular pattern, it is difficult to ascertain the next most probable move. Therefore, relying heavily on the wave count suggesting five waves, consisting of three smaller waves each, was completed at contract low.

Therefore, a correction of such, or the potential beginning of a new impulsive wave structure, is now anticipated with upside targets for August measuring to a close above $147.35 and then $150.85.

An investment in futures contracts is speculative, involves a high degree of risk and is suitable only for persons who can assume the risk of loss in excess of their margin deposits. You should carefully consider whether futures trading is appropriate for you in light of your investment experience, trading objectives, financial resources and other relevant circumstances. Past performance is not necessarily indicative of future results.

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