As a fan of the LAWG647 Model (I should be I created it) it appears to me that the Cattle/Feeder Cattle market could become markets of interest. Why do I think such a thing? Be advised thatThe Model is warning of an increased likelihood of an upcoming Cattle Battle between the Bulls and the Bears, or in this case the Bulls and the Cows. Let’s take a moment and look more closely at what the The Model is telling us.
The Given: August Cattle started the week of June 1 in an uptrend. The Model alerted that the Trend Turning Value (TTV) is a close at or below $149.95 on Friday, June 5.
Looking Ahead: As I write this the August Cattle continue to remain above the critical Friday price trading at $150.50/151.50. One of the factors I believe is important is the percentage difference between the TTV ($149.95) and the present price ($151.00). In other words it will take a price move of less than 1% from present values to turn the market bearish. Be mindful at the height of the cattle bull market that percentage difference was as high as 15%/20%. The present percentage difference (1%) not only confirms the increased likelihood of a trend change The Model also forewarns of an increased degree of volatility, or as I like to call it battle ground values (BGV).
If Cattle Fails to Turn Bearish on the Close of June 5: If the August Cattle remain in an uptrend as the close on Friday, June 5th the TTV for Friday June 12 will be $149.82, unless August Cattle close this Friday at or above $157.82. I think we can all come to the reasonable conclusion that August Cattle will not close this Friday at or above $157.82 thereby $149.82 will probably be in play on June 12. Should August Cattle fail to turn bearish by June 12 they do get a short term reprieve for July 19 and 26. A close at or below $146.55 will be needed on June 19, or at or below $146.67 on June 26 to achieve the TTV. Then on July 3 the TTV becomes to $149.72.
Other Factors: The Model is providing other related factors indicating an increased likelihood of a trend change in Cattle. One is the June/October Cattle spread which had favored being bull spread until last Friday. As of now The Model favors being bear spread needing a close at or above $1.27 premium June to reverse to favoring bull spread. As I write this the LCM/LCV is trading at -.25 premium. In my opinion given that this spread can easily reverse once again to recommending being bull spread I believe it is worth watching as a possible harbinger as to what we might expect. I also find it noteworthy that The Model is showing the Cattle/Hog spreads having reversed to being long Hogs/Short Cattle and that is true for LHM/LCM, LHQ/LCQ, LHV/LCV.
What do Feeder Cattle tell us?
The Given: August Feeder Cattle are presently in an uptrend. The TTV for Friday, June 5 is a close at or below $209.10, and August Feeder Cattle are presently trading at $221.50. I think we can agree that we won’t see a close this Friday at or below $221.50.
Looking ahead: The $209.10 level needs to be viewed with caution as it overstates the underlying strength of August Feeder Cattle. The Friday, June 5 close will determine if there is an increased likelihood of a trend change on June 12. To that point a close at or above $231.10 on Friday, June 5 will re-confirm (which is more meaningful than maintaining) the bullish trend in Feeder Cattle. Again I think we can agree that it is not very likely that August Feeder Cattle will close at or above $231.10 on Friday thusly putting the $218.55 level into play as a TTV for June 12. If August Feeder Cattle fail to turn bearish on June 5 or June 12 they like August Cattle will get a short term two week reprieve as closes at or below $211.45 on the June 19, and $210.20 on June 26 will become the TTV’s needed to reverse the trend.
Conclusion: It is my opinion that the odds favor a trend reversal in the Cattle, but remember I am talking odds and odds are a measurement of both sides of an occurrence. I believe the odds of a trend reversal over the next two weeks to be six in ten, or a sixty percent chance of the market turning bearish and a forty percent chance that the bull trend will survive. I only give the odds of a trend reversal of six in ten for good reason at least I think it is a good reason. You must be aware that as a commodity (most any commodity) approaches TTV, is very likely that a reversal will fail and the underlying trend will remain intact otherwise I would put the odds at eight in ten. My leaning in due to the amount of time that Cattle have been in an uptrend, the reversal of the June/Oct Cattle Spread, the reversal of the Cattle/Hog spreads, and that the TTV’s are less than 1% away from present values. Keep in mind that in my opinion it is very possible for an intense BGP area around $150/$149 level as I believe the bulls will not relent easily.
AS ALWAYS TRADING FUTURES IS RISKY AND ONLY MEANT FOR BIG BOY AND GIRLS! THE WEAK OF HEART, THOSE THAT ARE CAPITAL CHALLENGED THOSE THAT RARELY TAKE RESPONSIBILITY FOR THEIR OWN ACTIONS, THOSE THAT DO NOT UNDERSTAND THE RISK ASSOCIATED WITH TRADING FUTURES SHOULD PROBABLY RECONSIDER INVOLVEMENT IN FUTURES TRADING!
Any questions give me a call 1-877-304-1369, or email me at lee@efggrp.com