Harrington's Sort & Cull

Goodbye Facts and Analysis, Hello Emotion and Dumb Luck

John Harrington
By  John Harrington , DTN Livestock Analyst

Water law is extremely complicated, highly arcane, and yet another sad example of something of great importance that pretty much eludes me. As with so many other critical subjects, I know just enough to be dangerous.

Part of my limited understanding includes why gambling is legal in the middle of the Missouri River and not necessarily on various state shores that it separates from western Montana to St. Louis.

A similar type of legal nuance must have been in play several years ago when my wife and I embarked on a dinner cruise in Hawaii. We set sail like tea totaling missionaries, but turned into drunken pirates the first splash beyond the 5-mile limit.

For some reason, this week's runaway cattle market (both cash and futures) brought these odd thoughts to mind. Perhaps it had something to do with how price behavior seemed to move from the somewhat predictable jurisdiction of fundamentals and technical analysis to a new territorial wilderness randomly shaped by emotions, head-long forces of momentum, and tidal waves of psychology.

As live and feeder futures set new contract highs day after day (with the latter surging in the process to price heights never seen before in the history of the biz), it was like a riverboat captain turned croupier stepping forward with the blow horn to announce "We have now entered lawless waters, feel free to go absolutely crazy."

I'm not suggesting that basic considerations of supply and demand are no longer important. I'm not saying that technicians would necessarily be better served to use their charts to line bird cages. In the unrelenting call to understand markets, we can only use the tools we have.

Yet I think it's critical for both commercial and spec traders to honestly recognize the cattle market seems to be in the process of stepping through the looking glass, stepping beyond conventional assumptions and logic regarding fundamentals, moving outside the traditional rules of technical interpretation.

Such soberness (and boy, is it easy these days to get over served) is particularly vital for commercials who absolutely depend upon predictability, both in terms of the economics of production and the risk management of marketing.

Don't kid yourself that the market can only go higher given the logical implications of current fundamentals and technical formations. Believe me, the strict logic of such implications has already been exhausted by 250%.

Yeah, I know. The cattle market is laughing at my caution. Truly huge markets such as this have a way of rewriting the rules. But it's extremely dangerous for traders to assume they can understand the new rules in the same way they perceived the old ones.

Fight the craziness by focusing on achievable profit margins. Better to leave some money on the table than be left hopelessly under it.

As far as slaphappy speculators are concerned, why not take that last free drink served by the casino. You were going to have another one anyway.

For more comments from John, visit http://feelofthemarket.com/…


P[L2] D[728x90] M[320x50] OOP[F] ADUNIT[] T[]


To comment, please Log In or Join our Community .

6/27/2014 | 7:31 AM CDT
John, the charts are working fine. They say there is no upside resistance in cattle, and there is none! But futures were heavily discounted to cash and now they are rallying to where cash is trading, at the end of the delivery period. That is classic convergence. Hogs seem to be taking rather long excursions away from the CME Index, but they do come back at expiration. Don't get me wrong, this thing is eventually going to end ugly. Markets are the most bullish at the top, and it is going to be the technicals that tell us when the foundation is rotten enough for the building to collapse.