Chart of the Day
The information and opinions expressed below are based on my analysis of price behavior and chart activity
December Live Cattle – Charts are turning bearish to my eye
If you like this article and would like to receive more information on the commodity markets from Walsh Trading, please use the link to join our email list –Click here
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 or you can visit my YouTube channel.
December Live Cattle (Daily)
Today, December Live Cattle closed down 4.255 at 227.775, posting the lowest close in the past 5 days.
I’m still fundamentally bullish cattle, as we have less cattle and more people to feed here in the US. And I don’t think that there’s anything meaningful that the US Govt can or will do to increase our domestic herd count. There’s lots of fear and talk about the Mexican border re-opening to imports, but I don’t believe they’ll do that until the New World Screwworm has been sufficiently and successfully mitigated. That would help supplies over time, but will not make up for the lost time and the million or so head of cattle that we haven’t imported since the border has been closed. Additional imports of beef from Argentina won’t matter either, because they don’t have the capacity to produce that much. A reduction in Brazilian tariffs could have a bearish influence, but the US administration seems set on being protectionist for now. Retail consumers continue to buy beef at the grocery, no matter how much individual grumbling we may do about the prices paid. Yes, retail prices are high, but until the US consumer balks, demand will remain strong. Beef is still king. Recent negotiations with China have resulted in a “cease-fire” of sorts, but the Chinese have yet to approve or renew any of the 400+ beef import licenses from US producers. They’ve been sitting on those, so to speak, since 2024. If those licenses get renewed and US beef starts getting sent to China again, that could be very bullish for prices. Currently, nothing is moving in that direction.
Having said all that, I can’t ignore what the chart seems to be telling me. And at the moment, it’s telling me bearish things.
The market is and was definitely in need of some price retracement or break, as the trend has been up since April 2020. Scroll down to see the weekly chart that goes back to November 2019 and you might see what I mean.
On the daily view above, you might notice a few things. Today’s bar was a Bearish Engulfment, opening above yesterday’s high and closing below yesterday’s low. As you might surmise by the name, that’s usually a bearish sign. Today’s close was the lowest in the past 5 days and sets things up to re-test the lows from last week, set on Monday, October 27th at 223.175. Over the life of this chart, the 50-day moving average (green, 236.947) has held as support previously, but the market has been below that average for 8 days now. That average now has a slight decline to it, which is usually a bearish condition. The close below the 100-day moving average (grey, 229.192) is also bearish, in my opinion, as the long-term support erodes. When that average was tested in early April, the market rebounded quickly and was setting new highs by the end of April. The next target down would be the 200-day average (purple, 214.560) which is just below the June high (216.525), where I would expect to find technical price support. Open Interest (1st subgraph, denoted by the purple line there) has been declining from a peak of about 151,000 contracts to yesterday’s reading of about 117,000. That indicates to me that some 34,000 long positions have been liquidated in the December futures. There has not been a corresponding uptick in the back months that one would normally expect with traders rolling positions from one month to the next. Some folks might consider that “fund liquidation” but without the Commitment of Traders report, thanks to the govt closure, it’s difficult to be certain of that. Regardless of how you term it, participants have left this market recently.
Aggressive and well-margined traders may do well to consider short futures positions in the December contract. I would suggest that a Buy Stop be placed at or above this week’s high of 232.975. From today’s closing price that would be a risk of $2,080 before your commission/fees. You might even want to make that a reversal stop, as well, going long if that stop is elected. For a downside target, I might suggest 215.000, just below the June high and above the 200-day moving average. From today’s close, that would be a potential gain of $5,110, before your commissions/fees.
Cattle producers may do well to consider December Put Options. Those options have 31 days until expiration and will cover any fat cattle you’ll be selling over the next month. 220 Puts closed at 2.225, or $890 before your commissions/fees. The “Delta” on those options is currently at .24, so you’ll need 4 of them to adequately cover 1 futures contract, but that Delta should increase as they get closer to being “in the money” You’ll pay more in commissions/fees, but still tie up less capital that you would with a futures position. I would suggest placing a GTC order at 4x what you paid for the options. I wouldn’t recommend a protective stop in the options, rather, exit the options if the trade down to ½ of what you paid. If you’d like to be closer to the market, 230 Puts settled at 6.175 or $2,470 before commissions/fees and 225 Puts settled at 3.775 or $1,510 before commissions/fees.
If you like what you’ve read here and would like to see more like this from Walsh Trading, please Click here and sign up for our daily futures market email.
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 or you can visit my YouTube channel.
Live Cattle (continuous chart, front month, weekly)
It might be tough to see on the chart above, but I’ve added a Fibonacci retracement from the April 2020 lows to the contract highs of 4 weeks ago. The 23% retracement is near 207.50 and the 38% level is near 182.50. The 100-week average (grey, 196.727) hasn’t been touched by the market since mid-November 2020. The 50-week average (green) near 212.50 would be the first downside target, to my eye, and should/could be good support, like it’s been for the past 5 years or so. The short-term averages on this chart, the 5- and 10-week (blue, red) have not yet made a bearish crossover in December futures, but they have in the February contract. Those averages are pointing down, toward lower prices, at the moment. This could be a similar situation to 2023 when the market made a short term high in September before resuming the bullish trade in January of 2024.
If you like what you’ve read here and would like to see more like this from Walsh Trading, please Click here and sign up for our daily futures market email.
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 or you can visit my YouTube channel.
Jefferson Fosse Walsh Trading
Direct 312 957 8248 Toll Free 800 556 9411
jfosse@walshtrading.com www.walshtrading.com
Walsh Trading, Inc. is registered as a Guaranteed Introducing Broker with the Commodity Futures Trading Commission and an NFA Member.
Futures and options trading involves substantial risk and is not suitable for all investors. Therefore, individuals should carefully consider their financial condition in deciding whether to trade. Option traders should be aware that the exercise of a long option will result in a futures position. The valuation of futures and options may fluctuate, and as a result, clients may lose more than their original investment. The information contained on this site is the opinion of the writer or was obtained from sources cited within the commentary. The impact on market prices due to seasonal or market cycles and current news events may already be reflected in market prices. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. All information, communications, publications, and reports, including this specific material, used and distributed by Walsh Trading, Inc. (“WTI”) shall be construed as a solicitation for entering into a derivatives transaction. WTI does not distribute research reports, employ research analysts, or maintain a research department as defined in CFTC Regulation 1.71.