Farm Progress

Chart action looks like a turnaround, but we'll see what cash markets in feeders and fats can do to help or harm.

Chris Swift 1, Blogger

February 15, 2017

2 Min Read
August feeder cattle chart is suggesting the end to an Elliott wave 2 down and the beginning of a wave 3 up.Swift Trading Company

My intuition, or indigestion, is kicking up this morning. I anticipate cattle to begin moving higher.

Exceeding the first-of-February low in live cattle did not change the Elliott wave count at all. Note that the feeder cattle did not exceed the first of February low as did the fats. This suggests the feeders a little firmer. This is more interesting, considering the thoughts of elevated feeder cattle inventory to be marketed in that timeframe. The Fed Cattle Exchange will help to set the tone this morning.

The most interesting information will be where producers choose not to sell cattle, rather than where they will. The outside reversals posted on Tuesday, coupled with the reversal on Feb. 1, leads me to start trading in a manner that suggests the wave 2 is nearing an end.

The August feeder cattle chart has a 5-wave move up from the contract low. So does the index. Both futures and the index have made a correction of some significance to the rally.

I anticipate the current downward correction to be coming to an abrupt end in feeders. The inability of traders to push prices below the Feb. 1 low suggests strength.

A trade above $125.30 August will lead me to perceive the wave 2 ending. It will take a new high above $129.10 to confirm the wave 2 is complete.

Now, the next most probable move being a rally, it could be only a wave C or could be a wave 3. Wave C would be a lesser wave, versus waves with numbers, which are considered major waves. Were this to be just a wave C, the upside target measures to $139.82, while a wave 3 has an upside target to $151.70. Same measurements on the feeder index project a wave C target to $141.02, and a wave 3 target to $149.67.

If there is a perception of much skepticism in the market due to anticipation of an increase in marketable inventory this spring, why are feeder cattle futures moving higher?

Not only that, they've increased slightly in open interest as well. While the legs under this market may still be wobbly, I anticipate them to strengthen.

Watch for two occurrences to continue to materialize. One is basis going from positive to negative. This may take a few more months. The second is the spreads between months now moving into an inverted price scheme. Although there is no true carry in cattle, spot month fetching the highest price can be a strong indication of price direction.

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.

About the Author(s)

Chris Swift 1


Chris Swift is a broker and advisor in Nashville, Tennessee, offering technical and mechanical analysis of the commodity market to help people improve their risk management.

To contact Swift about hedging or to subscribe to his daily market comments at:

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