The feeder cattle market has seen its fortunes change over the course of the last few weeks. As its weekly chart shows, the more active October contract has fallen back from its high of $224.35 (posted the week of July 28) to a low this week of $211.00. And while no price chart damage has been done -- yet -- the contract is in position to establish a secondary (intermediate-term) topping pattern.
Note the relationship of this week's low to that of the four-week low of $210.70 (top chart, dashed red line). A move below this level yet this week could mean two things: first that the contract has established a new four-week low, usually a bearish sign; and second, the contract would have traded outside of last week's range with a lower weekly close highly likely. In other words, the contract would establish a bearish outside week to go along with its fresh four-week low.
Individually, these two factors should be enough to start a secondary downtrend. Add in the bearish crossover by weekly stochastics established the week of July 7, that was in conjunction with a key bearish reversal (at the time), and this week's possible signals would confirm the idea the secondary trend is down.
If October feeders start to fall, initial support is pegged near $201.20, a price that marks the 38.2% retracement of the uptrend from $163.725 through the high of $224.35. Given the continued strength of both the September to October and October to November futures spreads (bottom study, thin green line and thick green line respectively), a worst case scenario would be a pullback to the 50% retracement level near $109.05.
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