The five-year chart for live cattle indicates that the market has been locked in a corrective channel since October 23, 2014. With prices back down at the level last seen in May 2012, the chart would suggest a market that is heavily oversold.
In trading last week, the contract for October (LEV6) was unable to take out the recent low of US cents 109.65, although for the statisticians one should note that of the last 20 trading days, LEV6 has closed lower 14 times.
Source: www.investing.com, Spotlight Ideas
A good number of cash cattle traded for three-week out delivery yesterday afternoon at US cents 178/lb illustrating how the market keeps moving away from the seller.
Also, average steer weights have fallen 13 pounds from a year ago and that may reduce fears of another heavy September-through-Q4 decline, but until now there has been no positive influence on futures or cash prices.
On Friday, prices fell by 1.88% and that could be interpreted as a market capitulation. One has to bear in mind that this coming week is classified as a “long week buying for a short week” ahead of the Labor Day holiday on September 5.
At this juncture a steady cash price position would be regarded as some rest from the daily downward pounding of prices throughout August. That said, reading through the agricultural press over the weekend the sentiment is for a new low for the year in cash prices this week.
Cattle futures have been hit pretty hard the last couple of days as the realisation that cattle feeders must buy cattle cheaper if they have a prayer of surviving more economic pressure.
How much lower the market may or may not go at this juncture is impossible to say.
I look to all the time technicals which are calling “Strong Sell” and then I switch to a 10-Year chart. That shows me at least 26 US Cents of lower price potential. With spot running at 4 and 15 cents behind the 50- and 200-day moving averages, I am a medium-term seller.
Live cattle (10-year):
Parameters (live cattle October 2016 LEV6, US cents/lb)
Entry: sell 106.29,
Targets: 105.27... 103.24... 102.18.
Time horizon: medium-term.
— Edited by Michael McKenna
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