Cattle futures have been hit hard over the last several weeks. Is the market setting up for a relief rally?
Live cattle futures have been taken to the woodshed over the past few weeks. But there is mounting evidence that we could be approaching an intermediate bottom ahead of Friday’s Cattle on Feed Report.
There is bullish divergence on the standard 14-period RSI between the last two major lows – indicating that the selloff is beginning to lose steam, or conviction. This is corroborated by the declining volume profile in conjunction with the last two major lows. Declining volume in conjunction with slowing momentum appears at the end of price movements and in this instance would portray that all of the bears are currently in the market – nobody is left to sell it.
Volatility, represented by the 14-period Average True Range (ATR), has remained elevated in the duration of the correction in December Live Cattle prices. One immediate takeaway from this would be elevated options premiums. The higher the volatility in an asset, the more expensive an option will be. Something to monitor moving forward will be declines in the ATR in conjunction with sideways price movement, and a continued decline in short interest (portrayed in the bottom panel). If prices begin to balance out, while short interest continues to decline, it will indicate that bears are actively exiting the market.
Seasonal Tendencies
Below is a look at prices averages for October live cattle over the last 5, 10, 15, 20, and 30 years. As referenced many times last month, August can be a tricky year to stage a meaningful rally. Those headwinds start to subside some when we turn the calendar over to September. *Past performance is not necessarily indicative of future results.
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