To say live cattle have been bullish recently is an understatement. The market has been screaming higher, with the nearby December contract taking out the previous high of $134.50, albeit only by a few ticks, earlier this month. This would indicate the market remains in a major (long-term) uptrend, raising the question though of how much longer it will last.
Monthly stochastics (bottom study) show the market is approaching the overbought level of 80%. However, this doesn't automatically mean live cattle will be headed lower. Look back over the recent history of monthly stochastics, closely if you can, and you'll see that the market established a bearish crossover above 80% back in April 2011 with the nearby contract closing at $113.35. Since then, the market has rallied another $21 while monthly stochastics reflect an overbought situation.
More important to the market may be the underlying fundamentals. The nearby December to February futures spread (not shown) is trading at roughly (-$1.225, the December lower priced than the February). This is near the strongest the December has been in relation to the February at this time of year compared to the last five years, reflecting an ongoing bullish commercial outlook. This is made even more impressive if one factors in that the December contract is trading in the upper 2% of the five-year price distribution range.
From a purely technical point of view, a sustained break of the previous high of $134.50 projects to a possible upside target price near $151.10. This is arrived at by taking the range of the double-top ($134.50), subtracting the interim low ($117.82, May 2013), and adding the sum to the topside breakout level ($134.50 + $16.18). The question we have to ask ourselves is this: While this is technically possible, is it realistic?
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Commodity trading is very complicated and the risk of loss is substantial. The author does not engage in any commodity trading activity for his own account or for others. The information provided is general, and is NOT a substitute for your own independent business judgment or the advice of a registered Commodity Trading Adviser.