For the moment, live cattle futures are in an uptrend, but there are warning signs that point to a possible reversal of fortune for bullishly construed traders.
The most-active Oct contract is nearing some trendline resistance points, and Thursday’s lower close suggests a resumption of lower-trending markets.
The fact that today is Friday and the last trading day of the month also lends credence to an idea that cattle traders are ready to book a few short-term profits and even up some positions before heading home for the weekend.
The Oct contract actually began the current bump higher a week ago when it rallied from the contract low that was set last Thursday. The market was oversold and due for a short-covering rally, and a bullishly construed USDA Cattle-On-Feed report Friday afternoon provided the fuel for an opening gap on daily bar charts on Monday.
Some market analysts thought Monday’s jump to the daily CME-imposed daily trading limit was overdone and that the market would turn lower to fill Monday’s opening gap quickly. They were wrong in that the market continued to rise Tuesday and Wednesday.
However, Thursday’s pattern presents a possible rejoinder by bearishly construed traders. Prices opened lower, then rallied to set a high for this week’s move at $113.77 per cwt before falling to close lower and below the open. This suggests a loss of power by the bulls and that the bears have taken control.
TRENDLINES AND MOVING AVERAGES
Drawing a trendline from the March 17 high of $124.37 per cwt across the May 18 high of $119.60 and the June 8 high of $118.02 yields trendline resistance at about $114.00, slightly above Thursday’s high of $113.77. The line crosses today around $113.90.
Some traders will argue that Thursday’s retreat from a strong challenge of this resistance point shows traders were unwilling to test resistance.
Many traders also rely on moving averages to indicate market turning points. Some are straight moving averages while others are massaged to provide an extra peek at current market psychology.
A simple eight-day moving average of the Oct contract’s settlement prices, for instance, shows market support at $110.01 per cwt. But an eight-day exponential moving average, which gives greater weight to the latest closes, crosses at $111.03.
Those who follow the exponential moving average say it provides a faster analysis of market reversals. These devotees will wait for confirmation of Thursday’s loss of upward momentum before getting out of speculative long positions.
In addition to the eight-day exponential moving average, the 20-day simple moving average crosses at $111.04 per cwt, providing further support and a greater indication that this week’s rally is over. These points may provide sell stops for such traders.
CASH CATTLE MARKET QUIET
Cash cattle markets Thursday were quiet with bidding at $114 per cwt on a live basis in Kansas and Nebraska and at $113 to $114 in Texas against asking prices of $118 to $120. Dressed-basis bids were $185 to $186 against asking prices of $190.
Cattle last week traded at $115 live and mostly $185 dressed with some in Iowa at $184.
The USDA’s choice cutout Thursday was $0.32 per cwt lower at $198.76, while select was off $0.34 at $189.71. The choice/select spread widened to $9.05 from $9.03 with 106 loads of fabricated product sold into the spot market.
The CME Feeder Cattle Index for the seven days ended Wednesday was $141.05 per cwt, up $1.79. This compares with the Aug settlement Thursday of $140.47, down $1.80.