The information and opinions expressed below are based on my analysis of price behavior and chart activity
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August Live Cattle (Daily)
Today, August Live Cattle closed at 209.200, up 0.225 on the day. You might notice from the chart above that prices have been holding right around the 50-day moving average (green, 208.986) all week. Today was the first time it was breached or broken, but the close was back up above that average. Since making the contract high on June 9th, at 220.050, Cattle prices have been trading lower. I do see a similarity between that day’s activity and today’s trade. While neither are textbook Doji’s (opening and closing at the same price) I think they do qualify as “equilibrium days” Those are days when the bulls had a chance to rally but couldn’t sustain it, and the bears had a chance to sell but that couldn’t be sustained, either. So price came back to where it started the day, creating what I call equilibrium days. I think that if you look back over the chart, you’ll notice those occurring many times. Sometimes they happen in the middle of the trend, but I think they usually happen at or near high/low points. And you also might notice that price movement tend to extend, once that directional breakout has been made. That extension can sometimes last just a day or two, but it can also last a week or two. Following days like this, I typically suggest placing a Buy Stop order above the range and a Sell Stop below the range. Since today’s high was 210.00, the Buy Stop might be placed at 210.250 or so, with the Sell Stop below today’s low of 207.700, perhaps near 207.250. If one order is filled, use the other as a risk/reverse stop. Using the example above, 210.25 to 207.250 would be a 3.00 risk, or $1,200 per contract before your commissions/fees. Perhaps an upside target on the long side could be near the contract highs (220.050) along with a downside target near the 100-day average (grey, 201.428) I think that an entry strategy like this is useful when you don’t have a position on, already, and are looking to enter a new trade. Speaking of that 100-day average, you might notice that we have not closed below that average over the life of this chart. So far this year, that has been solid support. The Stochastics are oversold, with this recent stretch being the longest oversold period on this chart. The purple line is the 200-day average. Fundamental supply/demand factors remain bullish, in my opinion, as confirmed by last Friday’s Cattle on Feed report and yesterday’s Cold Storage data, both from the USDA. The herd continues to get smaller in numbers, while the amount in the freezer is also shrinking.
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August Live Cattle (Weekly)
As of today’s close, Aug Live Cattle are down 0.625 on the week. Following weekly losses 6.425 and 2.625 over the previous two weeks, this week has slowed the downward momentum. Prices are currently under the 5- and 10-week moving averages, with the 5-week acting as some resistance earlier this week. Those averages are currently at 211.94 and 209.73 and are depicted in blue and red, respectively. The 5 week has started to turn lower, but they’ve not yet made a “bearish” crossover. The 10-week is still inclined higher, as is the 50-week (green) at 189.615. The weekly Stochastic (bottom subgraph) is out of overbought status and currently pointing lower. You might notice that the 5- and 10-week averages have held as support levels since the trend turned higher at the end of September last year. There were 3 weeks in February where the market settle below the 10-week and appeared to break support, but the price activity over that period was mostly sideways, if you will, rather than directional. Overall, the uptrend is strong and still intact, I believe, and the fundamental supply/demand factors from the USDA seem to be bullish, at the moment. Last Friday’s Cattle On Feed report confirmed that the herd continues to shrink, and yesterday’s Cold Storage report showed a decrease in our frozen beef stocks, as well.
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Every morning, at about 8 AM CST, I post a short video highlighting where I see opportunities in the futures markets. You can view my most recent video here
Jefferson Fosse Walsh Trading
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