April Live Cattle:
After rallying to contract highs of $128.55 on Dec. 16, April live cattle have consolidated and have run out of steam. One of the most precarious spots to lose momentum is at or near recent highs, which is precisely what April fats have done. The stochastic measure of momentum peaked on Nov. 11 and has either been declining or consolidating ever since, despite price making fresh contract highs on Dec. 16. Anytime price makes new highs, but momentum does not, it is a major technical warning signal. Adding to April live cattle's tricky spot is the fact Friday and Tuesday's price action sat right on the 50-day moving average, an important trend indicator for programmed funds. Further, the Volume Point of Control, or VPOC, is calculated at $126.20. The VPOC shows us where the most amount of volume has changed hands during the life of the contract. If price were to slip below that level, it would most likely put a fair number of contracts underwater. April live cattle have some clear and present risk parameters from which to gage directional conviction, even if the bands are a bit wider than most would like to see.
March Feeder Cattle:
The chart of feeder cattle looks similar to that of live cattle, but the price strength throughout fall and winter hasn't been as pronounced. March feeders have a general "rounding top" pattern dating back to the Nov. 12 highs with this contract also sitting directly on its 50-day moving average. From a longer-term, weekly perspective, feeder cattle remain inside the $130 to $160 range, which has dominated price action going back to mid-2017. Front-month prices at $144.675 are nearly spot on the midpoint of that range, making directional bias difficult at the moment. Similar to live cattle, the VPOC for March feeders is just below spot prices at $142.875. If price weakness were to continue, and come in contact with the VPOC at $142.875, some of the managed fund position could become a bit flighty. We should be mindful of the 50-day moving average being below current prices. This would potentially be a sell trigger if prices trade lower and close below that level.
April Lean Hogs:
Downtrends remain in place on all applicable time scales in the lean hog market. This point is hammered home even more when one notes current spot prices are anywhere from $3 per cwt to $7/cwt below major moving averages. Fortunately, even though downtrends are still in place, momentum indicators appear to have bottomed and are trending higher. Open interest has been steadily rising on the decline, which would seemingly indicate rising fund short positions, but on the latest COT report, that group had a net long of 9,548 contracts. This is a far cry from either the 97,952-contract net-long or the 20,278 contract net-short position that denotes the respective record positions held by managed funds. Bulls are hopeful prices start to grab around the early December lows, and if they don't, the early August lows of $68.45 would be the next level of support. Interestingly enough, the VPOC on April hogs is $74.1000, a level prices have tried to cling to in recent weeks. Moving away from the VPOC now that price has found itself back there may be easier said than done, especially considering the amount of consolidation that took place in November and December. Downtrends remain in place and we should not be surprised by their continuance or acceleration.
Tregg Cronin can be reached at email@example.com
Follow Tregg Cronin on Twitter @5thWave_tcronin
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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