The live cattle futures contract currently is in a downward trend channel and appears to be headed lower. The nearby Feb contract could even test support at the contract low of $123.05 per cwt that was set Dec. 17.
The contract violated the downward sloping channel support once on Jan. 15 by closing down the daily limit of $3.00 per cwt at $127.55. The next trading day was Tuesday, Jan. 19, when it traded higher for the day.
However, the contract obeyed a longstanding rule-of-thumb called Howe’s limit rule, which says that once a market reaches a daily limit, it will re-explore that limit, and usually exceed it, sooner rather than later. In this case, the limit was exceeded Wednesday when it reached its daily low of $126.30 and closed at $127.25.
A graph of the Feb contract’s price moves shows the market’s moves over the last six months. The market appears bent on filling the chart gap left on Dec. 21 when it rocketed higher after a limit-up close on Dec. 18.
The graph also displays the four-day and the nine-day moving averages, with the four-day line providing adequate resistance over the last two weeks. The longer this goes, the stronger this moving average becomes, and a close above the line will draw traders’ attentions to look for other signs of a market bounce.
OTHER INDICATORS
The MACD line, which stands for Moving Average Convergence-Divergence, is a trading signal line drawn from calculations of moving averages. Basically, when the faster-moving line crosses the slower line, it provides a buy/sell signal to traders watching this popular indicator.
In this case, the MACD line has crossed the signal line and is pointing lower. The crossing of the lines last week provided more selling interest to technical traders.
The Relative Strength Index also is watched by many. It is an indicator of the magnitude of recent gains or losses in an attempt to give a number to the concept of a market being oversold or overbought. Traders will designate a point at which a market is over-extended and in need of a correction, usually around 20% or 80%, but it can be around 30% and 70%.
The RSI for Feb cattle stands at 37.63%, approaching, but not yet near, oversold conditions, leaving room for further declines.
CASH CATTLE QUIET
Cash cattle markets Wednesday were quiet with no trading reported. Scattered bids of $202 per cwt were reported in Nebraska’s dressed-basis market, but offers ranged from $208 to $212. No bids were heard around the live-basis markets with offers mostly $133.
Cattle trading last week ranged from $132 to mostly $133 to $134 per cwt on a live basis, up $1 from the previous week. On a dressed basis, cattle traded at $209 to $212, down $1 to $2.
The USDA reported slightly higher wholesale beef prices Wednesday, with choice up $0.02 per cwt from Tuesday at $229.95, and select up $0.44 at $224.14. The choice/select spread narrowed to $5.81 from $6.23, and there were 108 loads of fabricated product sold into the spot market.
The CME Feeder Cattle Index for the seven days ended Tuesday was $159.40 per cwt, off $0.49. This compares with the Jan settlement Wednesday of $155.00, down $1.55.