Technically Speaking
Darin Newsom DTN Senior Analyst

Tuesday 10/15/13

Falling Feeder Cattle

Late last week I received a call from a subscriber asking for my thoughts on the January feeder cattle contract. I quickly pulled up its weekly chart, and was intrigued by just how sharp the recent rally has been. Since posting a low of $147.90 the week of May 20, the contract had exploded to a high of $169.425 (last week), leaving only one short-term pocket of consolidation along the way. The other thing I immediately noticed was that the January contract, according to its weekly stochastics, was sharply overbought.

Source; DTN ProphetX

This put Jan feeders in the proverbial no-man's land. Yes, it could continue to climb higher because picking tops is in a straight up market is always hard to do. However, it was just as likely to fall back to earth like a rocket that has used up all its fuel. As this week gets under way, the latter seems to be holding true.

A look at weekly stochastics show the contract already flirting with a bearish crossover. This means the faster moving blue line has crossed below the slower moving red line, with both above the overbought level of 80%. In fact, in the case of Jan feeders, both are above 90%.

The contract itself has established a potential double-top at last week's high of $169.425, equaling that price during Monday's session. If indeed this marks the high, initial price support is pegged between $162.25 and $161.20. These prices mark, roughly, the 33% and 38.2% retracement levels respectively of the previous uptrend. However, recall that consolidation in mentioned earlier. Note how that trade seemed to center around the $158.66 level, indicating the contract could possible fall back to the 50% retracement level. Much will depend on how quickly weekly stochastics start to fall once the downtrend gains momentum.

To track my thoughts on the markets throughout the day, follow me on Twitter:\DarinNewsom

Posted at 6:54AM CDT 10/15/13 by Darin Newsom
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