Technically Speaking

Tregg Cronin
DTN Contributing Analyst

Cattle futures continued to exhibit trendy, impulsive behavior higher following the plunge to six-month lows at the end of May. Since then, live cattle have recovered 4.6%, but more importantly hit the 61.8% retracement of the April-May sell-off. With cattle futures now firmly inside the 38.2% to 61.8% retracement box, the question becomes whether the contract turns consolidative or can maintain the intermediate term uptrend. The 50-, 100- and 200-day moving averages are all currently underneath the market, which should act as support on any short-term corrections. Momentum indicators peaked and turned over after the rally to $143.775 on July 25. With all these factors considered, we feel live cattle futures could be in for some aimless, choppy trade inside the range from $138 to $143. To reinstate the uptrend and position for additional gains, the October contract simply has to take out that $143.775 corrective high.

In even more pronounced fashion, feeder cattle have enjoyed a sporty rally from the May lows, amounting to 9.3% and recovered well more than 61.8% of the previous sell-off. The difference with feeder cattle is the rally has been much cleaner with the consolidation period from early June to early July so far holding as support from last week's lows. That sort of price action looks much like a textbook five wave than a pattern which is about to give way to lower prices straightaway. To that end, the 200-day moving average held Friday's lows at $178.22 and will be a level of importance when trade gets rolling this week. To retain the positive technical tilt, we would expect that 200-day moving average as well as the highs from June at $177.90 to $178.425 to hold this week. If those highs cannot hold this week, then the July 22 high at $184.90 could very well have been the end of the three-wave corrective sequence stemming from the May 23 lows at $166.075. Upside triggers would be $182.25 and $184.90.

In a similar vein to cattle futures, lean hogs continue to track higher with corrective blips along the way. After the plunge to multi-month lows on July 5 at $86.825, hogs have strung together a nice rally which has now progressed 61.8% of the March 31-July 5 sell-off. By pushing past the 61.8% retracement, hog futures now have little in the way of technical resistance on their way to those March and April highs. After consolidating heavily the last 60 days, the current rally was easily able to push past the 50-, 100- and 200-day moving averages, highlighting the now dominant trend. Momentum indicators remain pointed up, although we are watchful for any sort of bearish divergence with price as the contract attempts to make new highs. If new highs are made on waning and diverging momentum, this would be an early indicator this move is running out of gas short of the March highs. Considering these issues, a supportive policy remains advised in hog futures with trade below the $92.425 corrective low from July 26 needed to defer this call.

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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

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