Technically Speaking

Livestock Markets: Weekly Analysis

Live Cattle: The October contract closed $8.325 higher last week. October live cattle are in posting to test the recent high of $160.75, with a move to a new peak setting the stage for a possible 5-point top, similar to what could be seen in October feeder cattle. Weekly stochastics remain neutral to bearish with the last secondary (intermediate-term) signal a crossover in conjunction with the bearish close the week of July 27. Friday's CFTC report showed noncommercial traders added to their net-long futures position, though high market volatility could soon lead to renewed liquidation.

Feeder Cattle: The October contract closed $7.65 higher last week. October feeders posted a new high of $225.00, setting the stage for a possible 5-point top (for more information, see the Technically Speaking blog from Thursday, September 4). Trade volume increased last week to 23,972 contracts, an important characteristic of a 5-point top as opposed to declining volume of a head-and-shoulders formation, despite the 4-day holiday shortened week. Weekly stochastics remain bearish, going back to the crossover above the overbought level of 80% in conjunction with the first high (point 1) of the 5-point top the week of July 7.

Lean hogs: The October contract closed $7.50 higher last week. October lean hogs extended its strong rally off the test of support at $90.45 (low of $90.45 the week of August 18), a price that marked the 67% retracement level of the previous uptrend from $76.525 through the high of $118.35. The contract is now testing resistance between $104.40 and $109.05, price that mark the 50% and 675 retracements of the recent downtrend. The secondary (intermediate-term) trend is up with last week's move to a new 4-week high in conjunction with a bullish crossover by stochastics below the oversold level of 20%.

Corn: The DTN National Corn Index (NCI.X, national average cash price) closed at $3.30, down 9 cents for the week. National average basis (NCI.X minus the futures market) was calculated at 26 cents under the December contract, 1 cent weaker for the week. Weekly price distribution studies (close only) show the market to be underpriced. Last week's close puts the NCI.X in the lower 9% of the 5-year range, the lower 31% of the 10-year, the lower 23% since the beginning of corn's demand market with the 2005-2006 marketing year, and the lower 37% of the range since total domestic demand climbed above 10 bb during the 2003-2004 marketing year.

Soybean meal: The October contract closed $5.80 lower for the week. While technical signals continue to indicate the secondary (intermediate-term) trend is up, given the recent bullish crossover by weekly stochastics (week of August 11) and move to a new 4-week high (week of August 18 and last week), the lower close could lead to a minor (short-term) sell-off. Support is at the recent low (the 4-week low) of $354.60.

Last Friday's CFTC Commitments of Traders were report showed positions as of Tuesday, September 2.

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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.

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