Live cattle futures have recovered all the losses from the Tyson plant fire in August. The market now stands at solid resistance from a prior chart consolidation and a 62 percent retracement from highs back in April.
I still see the market as being bullish. The fundamental side looks good as packers still have solid margins and can afford to buy cattle at higher levels. The selloff from the Tyson fire was a huge overreaction as the market was quickly able to get back to business as usual.
The technical side is an interesting picture. The “V” bottom formed in early September was the basis for the market reversal. Live cattle often forms these types of bottoms and they are a very bullish sign. The strength of the reversal carried prices past the gap that was formed from a series of limit down moves in August. It is a positive technical sign for a market to close/fill a gap and continue to move past it. The big question now is whether the market can move beyond the resistance or this resistance level will force the overbought market to turn lower.
I am bullish on the market and I expect the market to eventually continue higher. I do realize this could be a tough area for cattle to overcome and the market could be in for a pullback. This would be a logical point to short the market for those who are negative on the market. I like to stick with the trend and feel strong markets often eventually overcome strong resistance levels.
The December live cattle contract will need to clear the 114 – 115 level to renew the uptrend. There isn’t much for chart resistance above this breakout level. There was a fairly quick drop earlier this year in the livestock markets when the trade war issues started. An improved export picture could justify prices getting closer to the highs from April.
The market has been trading sideways to work off the overbought conditions. That is a fairly common pattern after a “V” bottom and strong move to heavy chart resistance. There has also been a quick shakeout or two, which makes those who are holding longs to get a little nervous at these levels.
If the market ultimately breaks out higher, I wouldn’t expect it to be a clean breakout. These are becoming more rare occurrences. There will probably be some back and forth trading as the market moves above the 115 level. However, a breakout will eventually have traders looking for a test of the previous highs from April.
Feel free to contact me to discuss how I am recommending my clients trade the live cattle and other futures markets. Ph: 630-485-2100, ext 532 or use the contact form.
