I was incorrect in my thinking Wednesday when I suggested funds to not want to be adding positions a third day in a row.
They did so to the tune of another 2,444 contracts, bringing the total open interest to 291,074. This is the largest open interest I've seen in quite some time. Not only is this new money, but more individuals participating as well.
What I anticipate from here is several days of sideways to softer trading through the end of next week.
Come the first of the year, I would anticipate funds increasing positions in an attempt to get a jump start on the new year. This will be perceived as the opportunity to push February futures near or above the $117.50 target.
At that time, I will begin looking hard at laying off risk in the April and June fat cattle. I anticipate year 2017 to be very like 2016, with highs for the year made earlier rather than later. I perceive there to have been enough changes taken place that numbers alone will not be the driving force. Instead, I anticipate more sideways trading with lows not exceeding current weekly continuation lows and highs still to be determined.
In feeder cattle markets, the softer tone this morning will make it nearly impossible to pry out a reasonable premium for options. Although I continue to anticipate a higher trade in the coming weeks, I am glad to have one-third of inventory already recommended to be offset.
Trading is exceptionally quiet so far. Lots of inventory has been moved recently. This was done while prices were rising. With inventory now pretty much gone, selling pressure may subside and not put too much pressure on the board until later in the winter or early spring. Again, I anticipate that the subtle changes seen are enough to have broken the bear market, but not nearly enough to promote a bull market.
After the first of the year, I expect funds may increase positions and that could push February futures near or above the $117.50 target you can see on the chart.
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.