Livestock Technical Update
August Live Cattle: The most-actively traded live cattle contract finds itself in a peculiar spot to begin this week. After an impressive seven-day rally, which saw new contract highs, August live cattle reversed course sharply, erasing the previous two session's worth of gains. In doing this, the contract has opened debate on whether the thrust to new highs on June 16 was a bull trap and false breakout. Momentum indicators have turned down but did not register a bearish divergence as the indicator made new highs. If prices were to rally to new highs above the 125.775 contract high, but momentum indicators failed to do the same, it would be a flashing signal of a bearish divergence in momentum. Live cattle futures would do well to hold support from the former highs and resistance at 122.800 on May 12 and 121.225 on May 25. If these support levels cannot be held, it would be further indication at least intermediate-term highs are in.
August Feeder Cattle: Feeder cattle have a slightly different chart picture than fat cattle as they failed to take out the April highs before stalling last Thursday and Friday. Prospects appeared good after the August contract took out the May 26 high at 158.725, but since that time, price has stalled out with momentum indicators turning lower. Major moving averages are all below the market by $2 to $6 per hundredweight (cwt), so the longer-term trends are still higher. Those moving averages at $149 to $153 should be looked to as potential support along with the 38.2% retracement of the $141.525 to $160.150 rally at $153.035 and the 50% retracement at $150.838. The Volume Point of Control, or VPOC, is at $152.850, which should also act as a source of support on any further setback attempts.
August Lean Hogs: Unlike the cattle markets, there is no debate on lean hog futures as to whether the top is in. The August contract peaked on June 7 and has witnessed seven consecutive lower closes, erasing 11.5% from the early June high. August hogs went through support at $110.250 with the next previous price support candidate at the corrective lows from $104.375 on May 17. Interestingly, the 61.8% retracement of the $95.225 to $120.550 rally sits at $104.899., which is almost exactly the corrective low from May 17. We would look to this area as major support on any further setback attempt. The commercial hedger short position was close to a seven-year high before the most recent setback with the next update of their position on Monday. Barring a major turnaround in price action this week, it would appear the commercial position is well structured while the managed fund net long over 84,000 positions looks vulnerable to further liquidation.
Comments above are for educational purposes and are not meant to be specific trade recommendations. The buying and selling of commodities and futures contracts involve substantial risk and are not suitable for everyone.
Tregg Cronin can be reached at firstname.lastname@example.org
Follow him on Twitter @5thWave_tcronin
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