July 28, 2016
In the live cattle markets, certain down trend lines have been exceeded this week. A close of more than two days above the 34-day moving average has materialized, and a previous high exceeded, all this week.
While none of these factors signal a bull market, they do begin to raise doubts about further abilities to push prices lower.
With the positive basis still exceptionally wide, considering a possible $120.00 or better trade this week, I see no reason to want to sell cattle for less in the future. Therefore, there is little to do at this juncture.
The nearby live cattle chart is showing signs of life, with a break in a downtrend line, the 34-day moving average, and resistance at a previous high.
As for feeder cattle, further new highs today suggest the wave-1 rally remains intact. A wave-2 correction is anticipated upon completion of the wave 1. Since this rally has only gone a couple of days, the wave 2 is not anticipated to be much more than a like time frame. So, be cautious about wanting to make sales for this fall on this first move up.
One may want to lightly tread, owning a 20% to 30% stake in options for this falls marketings somewhere north of $146.00 basis August.
Expect more sideways action
For the past six months, cattle traders, producers, and purveyors have attempted to realign supply with demand. With the supply/demand factors having been disrupted to such an extreme, the wide sideways trading pattern over the past six months formed.
An issue with this was that more often than not, prices remained at the lower levels than upper levels. As the sideways pattern lengthened in time, the price range narrowed further and continued to remain toward the lower end.
Now I perceive some fundamental changes are in play, and I anticipate another six months of sideways trading. This time though, I anticipate the trading to be closer to the upper end of the range than the lower.
With only three trading days gone from contract low, there isn't a great deal technically to decipher. There are a slew of previous price points of interest to exceed. So, for the next several months, I anticipate traders to wiggle, squirm and fidget prices closer to the top end of the range than bottom.
With the basis still positive, I see little reason to want to hedge up significant amounts of inventory.
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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