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Swift's Market Comments

Cattle could flow up with equities markets

Cattle could flow up with equities markets
Demand is the key, but cattle are showing signs of life in the fed and feeder markets

 

The sun appears to be shining on a different dogs this morning.

Although we're a long way from a raging bull market, the shorts are covering in an unfriendly environment for them. I have read that packers are offering dollars over the August board for July delivery.

While some may perceive this as a ploy to keep inventory in captivity, and therefore reducing the need for inventory in the future, my analysis suggests that packers are securing inventory for needs being slated.

Hard to know what feeder cattle prices will do, but this chart shows my current thinking.

Restaurants and grocers both have noted good beef movement and therefore, to keep the black ink flowing, are securing inventory to keep the grills hot. A close above $113.85 August will exceed last week's high and close. A close above $114.35 August will help to confirm a reversal has materialized.

I've been talking about the importance of demand the last couple days in my mid-morning subscribers' newsletter on in my afternoon Shootin' the Bull commentary. This is a really important point and I'm seeing signs that beef is moving and helping build demand.

It's interesting how the equity markets shook off the European news so quickly. I was speaking with a client yesterday who made a very good point. He said for a year and a half, the equities market had very little change in political or economic environment. The prices were bumping against historical highs but unable to break through. The "Brexit" event last week in Europe may have been just the ticket to pull the equities markets out of the massive sideways pattern it has been in.

At this time, I anticipate the equity markets to begin trading higher with the anticipation of a new historical high. My analysis suggests that this will spur activity in all markets, due to just the movement of money from here to there. Recall, there are trillions of dollars sloshing around out there that were upended from their home last week. Whether attempting to get back into the door they were thrown out of, or searching for a new door to park money, markets are anticipated to reflect some movement of this money.

August feeder cattle broke out of the triangle formed on the hourly chart to the upside as anticipated. Now trading above last week's high, things are fixing to get really interesting in the feeder cattle market.

At present, the August feeders have an initial move up from the contract low, a correction of that initial move up, and now a new move to the upside that has exceeded the initial high.

So, what we have here is not a failure to communicate, but either another simple 3-wave correction of the bear market, or the first attempt at the formation of a 5-wave pattern that would help to confirm the lows are in for some time to come. I anticipate a close above $142.37 August. If so, then anticipate movement towards the $147.30 area in the August contract.

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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