Recall from previous discussions continuous monthly livestock charts are not my favorite studies for a number of reasons.
Live Cattle: I still see a major (long-term) downtrend on the market’s continuous monthly chart. However, the previous bearish reversal pattern occurred during April 2021 when a bearish key reversal was completed, and the market continued soon began rallying again. This time around I do not have a clear reversal patter with initial support at the previous 4-month low (March low) of $133.50. Monthly stochastics have posted a series of bearish crossovers above 80%, with none of them turning the market’s momentum bearish. What makes the strength of live cattle more interesting is it’s futures spreads remain bearish, meaning supply and demand is also bearish. Yet the market has proven difficult to break, putting the spotlight on Newsom’s Market Rule #4A: A market that can’t go down won’t go down.
Feeder Cattle: The major (long-term) downtrend on the feeder cattle continuous monthly chart looks clearer, with the market posting a bearish key reversal during February before extending its initial selloff to a new 4-month low of $150.175 during March. With futures spreads continuing to show bearish fundamentals, the downside target area is between $144.40 and $136.70. Obviously feeders won’t break if live cattle can’t come down, particularly if the target for feeders puts it near even with the nearby live contract. Things would get interesting at that points. Technically, feeder cattle remain near overbought with monthly stochastics holding near 80%. The most recent bearish crossover above this mark occurred at the end of January.
Lean Hogs: The continuous monthly chart continues to show a major (long-term) downtrend, with the recent 3-month rally looking to be Wave B (second wave) of the major 3-wave downtrend pattern. It also brings to mind the Benjamin Franklin Fish Similarity (Like guests and fish, markets tend to stink after three days/weeks/months moving against the prevailing trend). If the market is indeed moving into Wave C (third wave), then it would be expected to take out the Wave A low of $70.20 from December 2021. That’s a long way down there, meaning the market will need to see a dramatic change in its futures spreads and fundamentals to generate the degree of strong noncommercial selling required to get it down that far.