Late last week I received a call from a subscriber asking for my thoughts on the January feeder cattle contract. I quickly pulled up its weekly chart, and was intrigued by just how sharp the recent rally has been. Since posting a low of $147.90 the week of May 20, the contract had exploded to a high of $169.425 (last week), leaving only one short-term pocket of consolidation along the way. The other thing I immediately noticed was that the January contract, according to its weekly stochastics, was sharply overbought.
This put Jan feeders in the proverbial no-man's land. Yes, it could continue to climb higher because picking tops is in a straight up market is always hard to do. However, it was just as likely to fall back to earth like a rocket that has used up all its fuel. As this week gets under way, the latter seems to be holding true.
A look at weekly stochastics show the contract already flirting with a bearish crossover. This means the faster moving blue line has crossed below the slower moving red line, with both above the overbought level of 80%. In fact, in the case of Jan feeders, both are above 90%.
The contract itself has established a potential double-top at last week's high of $169.425, equaling that price during Monday's session. If indeed this marks the high, initial price support is pegged between $162.25 and $161.20. These prices mark, roughly, the 33% and 38.2% retracement levels respectively of the previous uptrend. However, recall that consolidation in mentioned earlier. Note how that trade seemed to center around the $158.66 level, indicating the contract could possible fall back to the 50% retracement level. Much will depend on how quickly weekly stochastics start to fall once the downtrend gains momentum.
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