Live cattle futures are on a downward trail that may lead to a challenge of contract lows very soon.
The most-active Aug contract Thursday settled at $113.35 per cwt, down $0.22, but the low of $111.75 got close to the May 26 low of $111.45 and the contract low of $110.92 set Apr. 22. Support can be expected at these two lows plus the low of Apr. 29 at $111.27.
Minor support can come from a couple of other sources in the short term, but most technical indicators are pointed lower.
There is little to recommend a rally unless it would be cash-market support before the Jun contract goes off the board on June 30. Cash cattle this week are trading at $121 per cwt on a live basis, down $7 from last week, but still $3.73 above Thursday’s $117.25 futures settlement.
Even with a marked positive basis, futures prices would not be forced to climb at any point into the end of the month. Traders could just hold steady and allow a weak cash market to catch up.
THE PULL OF A CHART GAP
However, a significant point for technical traders will be a tiny gap on daily bar charts of the Jun contract. This gap is from the June 13 low of $119.45 per cwt and the June 14 high of $119.05.
Markets like to fill their chart gaps, or trade through this area, and they like to do it sooner rather than later. But even subsequent trading months can be pushed or pulled to fill a gap left by an expired trading month.
That makes all gaps significant points of interest for investors. A market doesn’t have to fill its gaps, and it doesn’t have to do it quickly, but it generally likes to do so eventually.
CANDLESTICKS
Another point for talking about a possible rally is Thursday’s formation of a “hammer” on candlestick charts for the Aug contract. Such formations look like a square lollipop with a long handle extending to a new low for the downward move.
Candlestick chartists like to say such formations are hammering out a bottom.
Such bottoms don’t have to be long-lived or significant rallies to satisfy a candlestick chart’s definition, so most candlestick proponents say other technical and fundamental factors should be included in an investor’s decision to buy a market.
Some traders have said the market is oversold and due for a rally, and short covering from this week’s cash cattle sales on a Friday could provide just such a boost for the day. Rallying for a couple of days might fill the Jun chart gap and allow the market to sag again.
CASH CATTLE MARKET $7 LOWER
Cash cattle markets Thursday traded $7 per cwt lower at $121 per cwt on a live basis. Dressed trades were at $197, down $9 to $10. Trading was not active, however, and more action could come today at similar prices.
The USDA’s choice cutout Thursday was $2.94 per cwt lower at $223.48 per cwt, while select was off $1.51 at $202.75. The choice/select spread narrowed to $20.73 from $22.16 with 120 loads of fabricated product sold into the spot market.
The CME Feeder Cattle Index for the seven days ended Wednesday was $146.11 per cwt, down $1.33. This compares with the Aug settlement Thursday of $139.62, down $0.62.