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Picking a top in cattle?


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Blue Line Express

The Livestock Roundup

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Cattle Commentary: December live cattle futures closed lower for their third consecutive session, trimming as much as 5.725 off of last weeks highs. The cash trade has seemingly halted its march higher with 124 coming across the board a few times over the past two days. The Fed Cattle Exchange sold 465 out of 1,191 head today, all at 124; this is more activity than the past few weeks which shows packers are being more proactive instead of chasing a late Friday trade. Some of the weakness in the December contract can be attributed to funds rolling out their long positions to February and April. Cash prices will continue to be the main driver, but market participants should be aware that the recent price action has attracted a lot of attention and new participants; this could cause irrational volatility intraday (as if the cattle market wasnt already irrational enough).

PM Boxed Beef Choice Select
Current Cutout Values: 213.13 198.89
Change from prior day: .49 1.13
Choice/Select spread: 14.24

Cattle Technicals

Live Cattle (December)

Live cattle charts are shaping up to look quite different so please note that these are December levels. If you would like the to know what we are looking at for the deferred months, please let us know. The last three sessions have brought one of the highest RSIs of the year back down towards the neutral zone with a reading of 57.39 at the close. The gap open from October 30th is certainly a level that nearly everyone is watching, many are looking for that to fill at 121.625. How prices respond after filling the gap will be a big catalyst for technical traders in the near term. On the flipside, previous support now becomes resistance, so we are looking at a pocket from 123.825-123.90. As mentioned in the fundamental commentary, the recent volatility has invited a lot more market participation from those not as familiar with the cattle market; this could cause irrational volatility and price action which is why we often say volatility invites more volatility.

Resistance: 123.825-123.90**, 125.90-126**, 127.65-128.60***, 132.225**, 134.55****

Support: 121.625***, 119.175-119.85**, 117.375-117.725**

Feeder Cattle (January)

January feeder cattle get a golden star today for closing the gap at 156.775 from October 27th. What the market does going forward could set the tone for the intermediate term. If the funds do continue to reduce some of their long exposure and encourage a close below support, we could see continuation towards 155.10-155.55, this pocket represents the 50% retracement from the October lows to the October highs, as well as the other levels including the previous contract highs from October 10th. First technical resistance comes in from 158.80-159.27 which represents a key Fibonacci level as well as support early in the week (previous support now becomes resistance. The recent slide lower has brought the RSI (relative strength index) back down to near neutral levels with a reading near 55 at the close.

Resistance: 158.80-159.27***, 160.725- 160.90**, 165.225****

Support: 156.65-157.10**,155.10-155.55**, 153.475**

Lean Hog Commentary and Technicals (December)

December lean hog futures have not posted a positive session to start the month of November, this after posting contract highs to round out the month of October. Long liquidation continues to be the common theme on the recent lower cash trade, spillover pressure from the cattle markets have certainly not helped the hog complex either. Despite trading nearly 5 lower to start the month, the RSI is only reading 49.5 which is essentially neutral. If youve traded or watched the hog market previously, you know that this market is capable of fairly large swing in any amount of time and when funds want to exit there is a fight for the exit. You dont have to go back all that far to see an example for yourself ie: August 16th-August 29th. Technical support levels have been sliced through like a hot knife through butter. The next significant levels dont come in until 61.35-62, this represents the 50, 100, and 200 day moving average; we would imagine a quick move down to here would also bring the RSI towards oversold conditions.

Resistance: 64.20-64.32**, 65.20-65.675***, 68.175**

Support: 61.35-62***, 59.90-60.14**, 57.36

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About the author


Oliver Sloup is Vice President of Blue Line Futures, a leading futures and commodities brokerage firm located at the Chicago Board of Trade. Blue Line Futures mission is to put the customer first, and that means bringing YOU the best customer service, consistent and reliable research and state of the art technology.  Oliver has been a guest on CNBC and Bloomberg, among others.  Oliver has over a decade of trading experience. Prior to Blue Line Futures, Oliver worked as the Director of Managed Futures at iiTRADER.

 

 

Contributing author since 10/6/17 

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