Farm Progress is part of the Informa Markets Division of Informa PLC

This site is operated by a business or businesses owned by Informa PLC and all copyright resides with them. Informa PLC's registered office is 5 Howick Place, London SW1P 1WG. Registered in England and Wales. Number 8860726.

Swift's Market Comments

All trading now is matching cash to futures

Swift Trading Company June cattle futures chart
Trading in the June live cattle contract at mid-morning was inside of Tuesday's range and short-term technical indicators were weakening. It's possible the cash market may plummet reach futures pricing.
Current action and monthly chart differentials suggest a correction is coming soon.

Narrowing of the basis continues, with futures closing the gap. This can change at any time, but at the moment it is all futures.

Even with the stellar over-$8 push higher in the June contract, there still remains $11.50 to close the gap with cash at $128.00.

Here is what is interesting. The oscillator on the June contract has yet to exceed its previous high. All other months beyond June have. All of the feeders have. So, what this suggests to me is to anticipate a short-term pause in the upward movement soon.

Traders will attempt to drive June into the ground once cash shows any sign of weakness. Then it will be a real fist fight to see where June and cash converge.

Now, once complete, and with the remainder of the months even more discount than June, it would lead me to anticipate the basis starting to be narrowed more by futures moving higher again, than cash lower.

Clearly this is one humdinger of a fundamental situation to work through. However, do not forget, that is what all the trading is about at this point. There is no bull market and there is no bear market. It is simply attempting to converge two products with a time and price differential. One must still have to anticipate the cash market literally plummeting to reach the levels of futures at this time. 

Trading of June today is currently inside of Tuesday's range. Short-term technical indicators are weakening. I have a gut feeling that regardless of how the FCE trades, traders may want to pocket a portion of the recently gained $8.00 to squirrel away for later date. 

Short-term indicators are weakening on the feeder cattle, as well. With the rally being literally straight up, it is difficult to ascertain the wave count on the daily chart.

Attempting to decipher the short term wave count is full of pot holes, but here goes. It is possible that primary wave 3 is complete at Tuesday's high. This opens up a can of worms for two reasons. One, the rally falls significantly short of target and it makes the third wave the shortest wave. Which in the Elliott Wave Theory, the 3rd wave can never be the shortest wave.

That suggests if primary wave 3 is complete, then we need to anticipate a primary wave 4 and then a wave 5 rally that is shorter in price than the wave 3. This will produce a lower target than the $153.00 previously anticipated and make the wave 3 not the shortest wave. To make a long story short, I anticipate a correction of some kind.

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.

Hide comments


  • Allowed HTML tags: <em> <strong> <blockquote> <br> <p>

Plain text

  • No HTML tags allowed.
  • Web page addresses and e-mail addresses turn into links automatically.
  • Lines and paragraphs break automatically.