A little over a month ago I posted a blog talking about the downtrend building in the January feeder cattle contract (October 15, "Falling Feeder Cattle"). At that time the contract looked to be in the process of establishing a double-top near $169.50, in conjunction with weekly stochastics showing the market to be sharply oversold. Combined these would indicate feeder cattle were set to move to a downtrend with an initial price target between $162.25 and $161.20, the 33% and 38.2% retracement levels of the previous uptrend from $147.90 through the high of $169.425.
This week the January contract has posted a low (so far) of $161.875, within the expected range for initial price support. However, with weekly stochastics still closer to overbought than oversold, the contract should see continued pressure. If so, the next price target is the 50% retracement level of $158.85.
As expected, noncommercial traders have been reducing their net-long futures position, with last Friday's CFTC report (positions as of Tuesday, November 12) showing this group holding 6,629 contracts net-long. This was a decrease of 880 contracts from the previous week, and down substantially from the high of 10,882 contracts the week of October 21. As long as this group continues to sell, look for the January contract to remain in its downtrend.
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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.