February Live Cattle:
With seemingly every commodity market on the planet rallying sharply the last several weeks, it is a bit disappointing to see cattle markets locked in rangebound trade. After popping to the highest level since the end of September on Dec. 28, live cattle have lost momentum, trading sideways to lower with some high-volatility sessions in between. The February contract remains above long-term moving averages such as the 50-, 100- and 200-day, which rest between $110 to $113. Fund activity has been light of late with the group selling 3,013 contracts during the latest reporting week to leave their net-long at 45,988 contracts. Worth noting, on balance volume (OBV) is trending lower and is now in negative territory with the last reading at 14,234 contracts on Friday. This is a caution flag as it shows more participation on down days over the last 20 sessions than on up days, a telling indicator amid rangebound trade. Generally speaking, a neutral price outlook is advised in live cattle with trade above the $116.300 corrective high from Dec. 28 needed to move to a more aggressive bullish stance. To the downside, bears will be watching the $111.35 corrective low from Jan. 5.
March Feeder Cattle:
While feeder cattle and live cattle markets usually mirror each other fairly well, that is not the case at present. Feeder cattle have not been rangebound but instead have been trending lower since before Christmas. Current price action could be described as consolidative or a pennant formation, which will likely culminate with a breakout. Considering the trend was down into the pennant formation, it is likely the breakout will be to the downside. It is interesting to note the current area of consolidation is occurring right at the 38.2% retracement of the $124.025 to $143.700 rally. The 50% retracement sits at $133.85, which lines up with the corrective low from Nov. 20 and would be looked at as another level of potential support on a further sell-off. March feeders are below both the 50- and 100-day moving averages with funds holding a net-long of just 1,772 contracts as of Jan. 5. These issues considered, a neutral-to-bearish bias is advised in March feeders with the highs and lows from Jan. 5 looked to for directional triggers in the sessions immediately ahead.
February Lean Hogs:
After an impressive rally the second half of December, lean hog futures have had a tough start to 2021, giving back nearly $4.00 of the previous $10.00 rally. It probably should have been a bigger tell after price put in a double top at $72.000 on Oct. 16 and Jan. 4. The $72.00 level is arguably the most important technical objective in this market and will retain a bearish bias until a retest of that level can be mounted. Major moving averages are still much below the market between $63.165 to $66.725. The 50- and 100-day moving averages also coincide with the 61.8% retracement level of the December rally at $66.45. Funds are holding a net-long of 37,077 contracts, which is roughly one third of their all-time record but still enough of a long position to remain a concern for additional liquidation. These issues considered, a bearish policy is advised in February lean hogs until the contract can form a bullish divergence in momentum around a support level like the aforementioned moving averages or retracement candidates.
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.
Tregg Cronin can be reached at firstname.lastname@example.org
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