AUGUST LIVE CATTLE
After an impressive recovery off the early April lows, August live cattle futures have turned consolidative the last two weeks. Major moving averages are offering support and resistance with the 50-day moving average at $92.50 and the 100-day moving average sits at $100.92. Unfortunately, as price has turned consolidative, momentum has been declining with the stochastic measure of momentum in a downtrend and showing no signs of divergence. The rally stalled around the 50% retracement of the $117.55 to $80.55 sell-off near $99.025. From a short-term perspective, we would be looking at the $99.80 corrective high from May 20 and then the $101.70 corrective high from May 12 for upside directional triggers. To the downside, we would be looking at the $96.625 corrective low from May 22 and the $96.125 corrective low from May 14. A break of any of these risk parameters should grease the skids for a continued move in that direction.
AUGUST FEEDER CATTLE
In similar fashion to live cattle, feeder cattle trade has turned consolidative of late, although intermediate-term trends are still up. Like live cattle, August feeder cattle futures have gotten sticky around the 50% retracement of the $156.50 to $100.025 sell-off around $133.25. Feeder cattle did make it all the way to the 61.8% retracement before selling off slightly. The 50-day and 100-day moving averages are also buffering price action with the 50-day below and 100-day above current spot prices. Momentum indicators, such as the stochastic measure of momentum, has bottomed after a sharp decline but has not yet completely diverged from price, which is what we would like to see in order to be more optimistic about a further recovery. The Volume Point of Control (VPOC), or level that has witnessed the most amount of trade activity during the life of the contract, is $131.20, which is now below spot prices and a supportive feature.
JULY LEAN HOGS
Lean hogs remain the weak leg of the livestock complex after the initial countertrend rally from mid-April to early May. Since that countertrend rally, July lean hogs have retraced 61.8% of the move with traders now debating whether a retest of the mid-April lows is in order. Fortunately, momentum indicators have bottomed and are trending slightly higher. In our view, this would still not qualify as a bullish divergence with price. Instead, we would like to see a retest of the $55.35 corrective low from May 20 with momentum indicators failing to make new lows alongside price. This would be a textbook bullish divergence in momentum and illustrate bears do not have momentum behind such a thrust. From the bull side, things look pretty straightforward with strength above the $66.70 corrective high from May 4 needed to reinstate a full bullish stance. All major moving averages are above the market and could offer resistance from managed funds who use these indicators closely with algorithmic trading programs.
Tregg Cronin can be reached at firstname.lastname@example.org
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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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