Sort & Cull

Prior to last Friday's sudden explosion in cattle futures, an unforeseen eruption that launched a pre-Christmas board jump of more than $14, the mailroom at the North Pole had noticed a huge decline in letters from cattle country.

When the head elf in charge of traditional belief and morale brought it to the attention of the great bearded one himself, Santa was already brooding over commodity charts decked with dead holly and income statements that read like Scrooge's list of charitable deductions.

"I think I see why my poll numbers have plummeted," the old boy mused. "It's a classic case of bad market/fake Santa. You'd think these greedy kids would be satisfied with presents spilling out the fireplace like a broken slot machine. But no, they expect me to safeguard their scatterbrain investments as well."

"No problem, Chief," the diminutive bureaucrat reacted. "I'll just get Dispatch to reroute the sleigh around the whole ungrateful bunch. All the more time for you to swill milk and cookies along the way."

"Just try that and you'll be back riding the clown car at Ringling Brothers," thundered Santa. "That ain't the way my reindeers roll. If I can sponsor a Santa Claus rally on Wall Street, pulling strings for some little country market should be child's play. By the way, call my broker and tell him to get long cattle."

In a nutshell, that's how Santa engineered the late-year cattle rally of 2015.

Or not.

At the risk of offending the great gift-giver, you might feel more comfortable with more empirical explanations. Something like a sudden sea change in concrete fundamentals. Perhaps a quantifiable supply shift from plentiful, heavy cattle to tight, light numbers. Or maybe a measurable surge in boxed beef demand or documented proof of exploding export activity.

What's that? Hard evidence of any change in market fundamentals remains as elusive as Kris Kringle's birth certificate?

Well then surely the adult understanding of the cattle rally must be found in the rational rules and principles of technical analysis. There must have been some definitive sign in the charts (as unambiguous as a star in the East) that simply made the greatest five-day price surge seen in years seem inevitable.

Really? Pre-rally chart formations looked as promising as Rudolph before his nose-job?

Here's the deal. I could care less if you believe in Santa or not. Just don't kid yourself there's a better explanation for the incredible turnaround in the late December cattle market. True, the professional in me wants to talk in terms of a massive shift in market psychology.

I could wax for paragraphs about the importance of market psychology, how perception and mindset shape fundamentals and identify complementary technical formations. Yet when the last package is wrapped and the final candle snuffed, I'm not sure market psychology means a great deal more than believing in Santa.

So the most skeptical beef producer in the land just might consider leaving a thank you note by the tree today, perhaps with a shot of lightly spiked eggnog. It couldn't hurt.

Merry Christmas!

John A. Harrington

For more from John see www.feelofthemarket.com

(CZ)

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