February Live Cattle: After an impressive run from early September until the highs posted on Nov. 11, live cattle futures have put in lower highs. The loss of upside momentum has been illustrated rather clearly on indicators such as stochastics, which show a textbook bearish divergence with price. The plummet in momentum was a red flag as price failed to make new highs. Fortunately, there are many solid support candidates underneath the market, which can be looked to if weakness continues in the near term. The 50-day moving average settled Friday at $119.71 while the 38.2% retracement of the $105.125 to $125.775 rally sits at $117.88. In addition, former resistance (which has turned into new support) exists at the July highs around $117.90. Admittedly, most of these "solid" support candidates are $4 to $6 per hundredweight (cwt) underneath spot prices, leaving quite an air pocket for additional liquidation. Managed funds as of Nov. 19 held a net long of 81,549 contracts which will provide plenty of downside ammunition if everyone wants to exit at the same time.
January Feeder Cattle: The weakness in feeder cattle began earlier than the weakness in live cattle, witnessing a large percentage correction, to date. So far, feeder cattle futures have retraced just over 38.2% of the entire $126.00 to $147.775 rally. In addition, feeders blasted through the 50-day moving average at $140.60 and nearly tagged the 100-day moving average at $137.95 at the lows Friday. Momentum indicators have plummeted, as would be expected. We would expect additional downside weakness in feeder cattle futures unless or until momentum can diverge from price in a positive manner around a support candidate. To stem the bearish tide and move to even a neutral stance in this market, trade back above a prior corrective high like $145.675 would be required.
February Lean Hogs: In similar fashion to feeder cattle futures, lean hogs have shown incredible weakness the last two weeks, trading to the lowest prices since early September. Spot prices are $6 to $9/cwt below major moving averages, reiterating the recent weakness. With momentum indicators already bobbing around incredibly low levels, we would expect prices to get sticky around August and September lows around $64 to $66/cwt. Spot prices are already in the bottom 20% of the July-to-November range, so holding an incredibly bearish bias at these levels would not seem prudent unless a fresh round of contract lows is forthcoming. Looking at the volume profile dating back to April, very little trade has occurred below current prices, putting the contract in somewhat of a technical no man's land.
Comments above are for educational purposes and are not meant to be specific trade recommendations. The buying and selling of grains and grain futures involve substantial risk and are not suitable for everyone.
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