Live Cattle in Limbo

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Bullish Divergence in Live Cattle – Are We Approaching a Bottom?

Live Cattle in Limbo

After sustaining all-time-highs for the majority of calendar 2023, both live and feeder cattle futures fell out of bed following the bearish Cattle on Feed Report on October 20th. Since then, the selloff has progressively accelerated without substantiating a higher close on a weekly basis since early November. At some point, every rally and every sell-off must come to an end. So, is there evidence that we may be approaching the bottom? 

Following the Money (Flow)

The ā€œbearish surpriseā€ in the October Cattle of Feed Report came from the Feed placement figures coming in higher than expected. The reportā€™s release came on a Friday afternoon following the marketā€™s close, so tradersā€™ holding long positions had all weekend to stew on the effect that the report would have that coming Monday. Unsurprisingly, when live cattle gapped lower Monday, October 23rd, it sent cattle bulls running for the hills. The chart provided by the CME Group below shows the net-positioning of managed money funds in Live Cattle dating back to mid-September. As you can see, long interest in live cattle has been halved since then. One of the reasons that the market continues to seemingly melt away can be attributed to the fact that bulls are fearful of coming back to the market until the sell off slows.

Canary In the Coal Mine

One of the first warning signs that we were approaching a market top was the bearish divergence observed in the December ā€˜23 Live Cattle contract. Well, we are now starting to see bullish divergence on the February contract. Could this finally be the sign that the bottom is in sight? If weā€™re going to use the bearish divergence on the December contract as a frame of reference, it took nearly 3 weeks in order for the market to eventually turn over. Looking at the chart above, we can see that the first instance of bullish divergence appeared on November 13th. If the timing were to play out similarly, it could indicate that the bottom is indeed in sight.

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Futures trading involves a substantial risk of loss and may not be suitable for all investors. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. Trading advice is based on information taken from trade and statistical services and other sources Blue Line Futures, LLC believes are reliable. We do not guarantee that such information is accurate or complete and it should not be relied upon as such. Trading advice reflects our good faith judgment at a specific time and is subject to change without notice. There is no guarantee that the advice we give will result in profitable trades. All trading decisions will be made by the account holder. Past performance is not necessarily indicative of future results.

Blue Line Futures is a member of NFA and is subject to NFAā€™s regulatory oversight and examinations. However, you should be aware that the NFA does not have regulatory oversight authority over underlying or spot virtual currency products or transactions or virtual currency exchanges, custodians, or markets. Therefore, carefully consider whether such trading is suitable for you considering your financial condition.

With Cyber-attacks on the rise, attacking firms in the healthcare, financial, energy, and other state and global sectors, Blue Line Futures wants you to be safe! Blue Line Futures will never contact you via a third-party application. Blue Line Futures employees use only firm-authorized email addresses and phone numbers. If you are contacted by any person and want to confirm your identity please reach out to us at info@bluelinefutures.com or call us at 312- 278-0500

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