Technically Speaking

Consolidation Dominant in Livestock

April lean hogs looks headed for a test of resistance at 89.65-89.675. (DTN ProphetX chart)

Consolidation has been the dominant trend in the live cattle market over the last several weeks. Fortunately, the market has left in its wake objective risk parameters from which to gauge directional bias. To the upside, February live cattle have the corrective high left at $141.425 and to the downside the corrective low at $136.025. Within that range, traders also have the 50- and 100-day moving averages, which have bracketed price action nicely the last week and change. Before Tuesday morning trade, the 50-day moving average sits at $137.969 and the 100-day moving average is at $136.108. These two sets of risk parameters should offer solid guidance for picking the next short- and intermediate-term trends. Separately, on-balance volume had been in a long-term decline dating back to Dec. 13. It is too early to say that indicator has bottomed, but it is worth monitoring to see if bulls are about to wrestle back control of daily price flow from bears.


Feeder cattle have also entered a consolidation phase, chopping inside a rather narrow $3.00/cwt range the last eight sessions. Beyond that tight pack of consolidation, feeders have a larger range with which to contend from $159.90 to $170.825. Just underneath current price action lies the 50-, 100- and 200-day moving averages, which would make a person think solid support undergirds spot prices. In addition, momentum indicators along with on-balance volume appear to have bottomed but are not yet diverging from price to the upside. From this center range, we do not have strong conviction about short-term price direction. It is quite possible whipsaw trade from the range center could be likely in the sessions immediately ahead. We would prefer to rely on recent corrective highs and lows as directional triggers for pending price action.


Heading into the holiday weekend, April lean hogs ended the week's price action on a near-limit move, propelling price back near the upper range cap of price action over the last six to seven months. In its wake, the April contract left the 50-, 100- and 200-day moving averages just under Friday's lows. Even though spot prices are above these indicators, we are still hard pressed to call the intermediate and long-term trends as up. Traders will be especially anxious to see how price action this week responds to the cacophony of resistance between $88.50 and $89.675. Any short-term failure in momentum as price approaches that resistance will be a red flag for weakness back inside the larger range. If, however, no weakness in momentum is seen, and price is able to push that resistance cap, a run at contract highs near $91.875 is possible.

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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