Technically Speaking

Downtrends in Livestock Remain Impressive

Former-support turned new-resistance at the $130.00 level should be able to hold futures on any subsequent rebound attempt. (DTN ProphetX chart)

DECEMBER LIVE CATTLE:

The all-out meltdown in live cattle futures the last three weeks has been one of the more impressive technical developments in ag futures of late. After surging to new contract highs and the highest spot levels since 2017, December live cattle have promptly sold off over 7.0% to trade to the lowest level since early June. In the process, December live cattle have sliced through the 50- and 100-day moving averages with the 200-day just below at $126.86. Momentum indicators are just now beginning to show the earliest signs of bottoming but have not yet diverged with price, a signal we would need to see to suggest prices are slowing or beginning to consolidate. With the severity of the sell-off, December live cattle have left very little in the way of technical objectives from which to gauge outright bearishness. The first level of resistance we would look to would be the former-support turned new-resistance at $129.90 from July 19. More broadly, the $129.90 to $130.00 level should act as solid resistance on any corrective rebound. Strength above the corrective high at $129.675 from Sept. 9 would also be another level from which to assess short exposure.

OCTOBER FEEDER CATTLE:

In a similar vein, feeder cattle futures have witnessed significant downside pressure with losses at Friday's settlement amounting to 8.5% from the highs posted on Aug. 24. More broadly, October feeder cattle futures have retraced nearly 61.8% of the entire May-August rally. Support candidates at various retracement levels as well as corrective lows from mid-July and late June have failed to hold on this sell-off. Like live cattle, feeders have blasted through the 50- and 100-day moving averages with the 200-day just below Friday's low at $156.61. Managed funds have been liquidating their position in feeders as one would expect, having dumped 4,964 contracts last week to cut their net long to 7,298 contracts. We would not call the fund position large at this point, as the all-time record long stands at 21,910 contracts and the record short is 8,895 contracts. We would expect the confluence of support from the 200-day moving average, the 61.8% retracement at $155.98 as well as the consolidation from mid-May to mid-June to hold on any further weakness this week.

DECEMBER LEAN HOGS:

When it rains in livestock futures, it pours. Lean hog futures have not been spared from the bloodletting in the livestock markets as the December contract has sold off 8.9% from the recent high on Aug. 30. The sell-off Friday pushed the contract below support at the Aug. 10 corrective low of $77.05 with the next objective being the corrective low of $74.125 from June 24. Friday's weakness saw price trade down to and through the 200-day moving average at $76.426, settling just below that level at $76.100. Stochastics are pointed sharply lower and have not yet begun to bottom out or even turn sideways, a sign of just how weak the technical structure of this market is. Managed funds still hold a significant long position in this market with a net long of 84,399 contracts which was up 1,010 contracts on the week. That position is not too far off from the all-time record long of 97,952 contracts, a prime source of the weakness the last couple weeks. A bearish policy remains advised in lean hog futures with near-term resistance at the corrective low at $77.050 from Aug. 10 needed to arrest the sell-off or even threaten it.

Comments above are for educational purposes only and are not meant as specific trade recommendations. The buying and selling of grain or grain futures or options involve substantial risk and are not suitable for everyone.

Tregg Cronin can be reached at tmcronin31@gmail.com

Follow him on Twitter @5thWave_tcronin

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