June 21, 2016
We have another lively day in the cattle markets, with volatility making its presence known.
In my opinion, the timeframe is going to be the worst of this situation. The length of time spent at the lower price levels, and persistent decline, is wearing on nerves. This is to the point where I perceive some throwing-in-the-towel trading may be transpiring.
Lenders are hard on the backs of producers and this makes for a very unfriendly environment in which to do anything.
A higher close on live cattle could produce the wave 4 on the close-only chart, helping decipher the next most probable move -- unfortunately another new low to complete a 5 wave pattern.
I wrote yesterday that in my opinion, the infrastructure of cattle production may be in grave jeopardy. The loss of working capital is perceived impacting the ability to absorb the selling. While crashing prices may benefit a few at the moment, the longer term destruction of the infrastructure is anticipated to change the beef industry noticeably.
Again, in my opinion only, I perceive participation in hedging at this time is increasing risk of loss rather than helping to mitigate it. Yes, the market has been going down and short positions could be profitable. Yes, if one has the ability to lift such hedges upon recognition of a reversal, that to would be great. However, things can go awry and it can take time for mentalities to change. Therefore one who gets short here and does not realize a change in environment, then sits through a loss in futures, has created inability gain lost ground in the cash market.
There are situations in life in which there is little that can be done but wait it out. In my opinion, as difficult as this may be, I perceive that waiting this one out and not exposing oneself to further risk exposure through futures or options, may produce an end result that is improved over the present situation.
The Elliot wave count remains incomplete. However, with the positive trading seen this morning, a close higher could produce the wave 4 on the close only chart. This would go a long way in helping to decipher the next most probable move. Which would be another new low to complete a 5 wave pattern.
Feeders are in the same boat as fats at this moment. A positive close today would help to begin showing a wave 4 correction. Upon completion of this wave 4, a wave 5 to a new low would be anticipated.
Now, with these chart patterns unfolding pretty quickly, and the on-feed report out this Friday, there is a chance that the damage done could be wrapped up before week's end.
The price decline from last on-feed report to this one has been about $9 as of today. I anticipate there to still be some finishing waves to this decline that are anticipated to push prices lower. Like the fats though, a market compressed at tightly as this one is to the downside, significant discounts and exceptionally volatile laden risk premium in the options, doesn't lead me to want to be short futures or long puts at this level.
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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