Among the many price-moving influences in live cattle futures, technical indicators play as much of a role in trade decisions as more fundamental factors.
While acknowledging that many futures traders are adept at reading the charts and making trading decisions based solely on chart patterns, fundamental traders often find technical patterns difficult to identify. In general, these are science-minded individuals who struggle with the art of reading charts, which some traders say is more a reflection of human nature than of the market they represent.
To say that all moves in the futures market are in some way rooted in the fundamentals is wrong, traders have said. The presence of high-frequency trading by computers proves this, they say, because a computer can’t know anything about diseases, the weather or changing consumer preferences. They only know the parameters for trade that are programmed in ahead of time.
WHAT DO TECHNICAL TRADERS LOOK AT?
While realizing that chart reading is an art, it is useful to know some of the indicators used by technicians to make trading decisions. Few, if any, rely solely on one study or chart pattern, looking instead to multiple studies for guidance, and in all cases, the charts and studies used are a personal preference of the trader.
Over the years, traders have devised their own charting techniques and studies that worked for them and their colleagues until their study became widely known. Some of these indicators continue to shed light on the human nature of futures traders and remain as stalwarts of the industry.
One such long-lasting charting technique is candlestick charts, thought to have been developed in the 18th century by a Japanese rice trader. Introduced to the western world by Steve Nison in his book “Japanese Candlestick Charting Techniques,” these charts are a variation on daily or weekly bar charts and are easy to draw. They can show short- and long-term patterns, with which to make trading decisions.
In cattle markets, many analysts continue to rely on moving averages. These usually are line graphs of settlement prices overlain onto daily or weekly bar or candlestick charts.
Because they ignore the opens, highs and lows of the market and average the settlements over a period of time, moving averages smooth out the daily market gyrations that can obscure the market’s trend. The fewer days used in the moving average, the shorter the trend being shown. Thus, a 200-day moving average shows long-term trends, while a seven-day moving average is all about short-term movements.
Pivot points are another study many traders use to show when a market or contract month has moved into a bullish or bearish mood. These studies are calculations of an average of highs, lows and sometimes closes and opens, of a chosen number of trading periods. The pivot point is the center the calculated support and resistance levels.
Trendlines are another commonly used charting technique and consist of drawing a line across the tops or bottoms of daily or weekly chart highs or lows. Many traders use them as their direction indicator, getting in or out of a market based on whether prices close above or below the line.
Fibonacci numbers also are popular. Based on the work of an Italian mathematician, these points of market direction retracement have proven to be relatively strong decision points for many traders.
Whatever methods are used, analysts stress there is no single technique that can be used, and some studies work better for some than for others. There are even some methods that baffle other traders.
CASH FED CATTLE MARKETS REMAIN QUIET
Cash cattle markets last week were very scattered and broken, making it difficult to assess a pattern. By and large, trade was $5 per cwt lower at mostly $129 per cwt on a live basis and $2 to $4 lower on a dressed basis in a range from $197 to $202.
Wholesale beef prices Monday were lower, with the USDA choice cutout at $209.04 per cwt, down $0.26 on the day, and its select cutout at $196.99, off $2.06.
The choice/select spread Monday widened to $12.05 from $10.25 on Friday, and there were 99 loads of fabricated product sold into the spot market.
The CME Feeder Cattle Index for the seven days ended Friday was $177.65, down $3.63. This compares with the Nov settlement Friday of $172.30, down $2.77.