October Live Cattle:
After an impressive recovery from the March lows, the trend in October live cattle has turned down in the short and intermediate term. Trendline support stemming from the March and June corrective lows was violated with the sell-off the last three weeks. Forewarning this change in trend was the developing bearish divergence in momentum, which looks to have been confirmed with the break below the Aug. 7 corrective lows. As price rallied to new highs for the move on Aug. 17, momentum made lower highs, signaling the pending trend change. The October contract has already pushed below the 50- and 200-day moving averages with the 100-day looked to for support down at $102.47. Some possible retracement targets would include the 38.2% retracement at $101.11 and the 50% retracement at $98.01 with the latter lining up nicely with the former support at the June lows. We would be watchful for even a shorter-term momentum change around those levels should price continue shedding risk premium in the days and weeks ahead.
November Feeder Cattle:
In similar fashion to live cattle, feeder cattle have witnessed a sharp trend change with market participants now searching for support levels from which the slide may be stemmed. Retracement targets for the current sell-off can be seen at the 38.2% at $136.37 and the 50% at $132.06. The 50% retracement looks to be stronger support given the prior price action from May and June, which held near that level. Admittedly, the 50% retracement looks a good deal away from spot levels and may not come into play unless the downtrend accelerates. On balance volume (OBV) has been in a sharp downtrend the last three weeks, as one would expect with bears pressing. While still in negative territory, the indicator appears to have bottomed and is working higher. We would keep an eye on OBV in the days and weeks ahead to see if this indicator can indeed push into positive territory, a signal bulls have wrestled control from bears and support may be close at hand.
October Lean Hogs:
In an almost mirror opposite of cattle futures, lean hog futures made their bottom in late June and have continued their recovery through Friday's close. Trends are higher on multiple time scales with spot prices closing in on resistance from the April and May highs. The October contract is closing in on the 50% retracement level of the entire 2020 sell-off, which would also be near those same corrective highs from April and May. Momentum indicators such as stochastics should prove useful tools if the current leg of the rally is stalling or nearing correction. Adding to the level of resistance spot prices are now encountering would be the 200-day moving average, which was rejected on Friday. There seems to be a confluence of technical factors conspiring at current prices to warrant caution with bullish exposure.
Comments above are for educational purposes and are not meant to be specific trade recommendations. The buying and selling of commodities or commodity futures involves substantial risk and are not suitable for everyone.
Tregg Cronin can be reached at email@example.com
Follow Tregg Cronin on Twitter @5thWave_tcronin
© (c) Copyright 2020 DTN, LLC. All rights reserved.