The nearby live cattle futures contract posted a key bearish reversal on the market’s continuous monthly chart this past April, indicating the major (long-term trend had turned down. This coincided with a bearish crossover by monthly stochastics, a combination that tends to make for a clear move to a new downtrend. Initially, that’s what the market saw as the nearby futures contract posted a low of $111.475 during June before rallying to a July high of $124.325, just below the April peak of $124.575. So what are we looking at here? The initial selloff looks to be Wave A (first wave) of the new 3-wave downtrend pattern with the subsequent rally Wave B (second wave). Wave B, by definition, is “the bounce in the new downtrend…”, and, “Depending on the type of correction taking place the rally may test the old highs (forming a double top) or even exceed the old highs before turning back down.”
Depending on what happens in early August, we could consider the April and July highs a double top pattern, with July’s lower close viewed as a possible bearish spike reversal. If so, the argument could be made Wave B has peaked with Wave C (third wave) expected to take out the Wave A low. This is were live cattle get interesting, though, with the August contract closing the month at $122.075 with October priced at $127.20. While this spread of more than $5.00 indicates market fundamentals remain incredibly bearish, it also suggests a possible collapse in the October contract depending on what the August issue does before expiring this month.