Live Cattle Outlook
Market updates from Walsh Trading.
Live Cattle –
In four of the past five weeks Live Cattle made new highs. Last week was no exception. However, after making new highs on Thursday, sellers came in and a pullback resulted. The pullback formed a Bearish Engulfing candle. An engulfing candle formation is a two bar formation. The 1st candle’s open and close is engulfed by the 2nd candles’ open and close. It is considered a reversal formation. It can be either bullish or bearish. It depends where it takes place in the price action. This one is a bearish formation in my opinion. It also formed an outside day where it took out both the high and low of the previous day. It also covered the four days prior highs’ and lows’. This in my view is another negative condition. The weekly chart has also the makings of a reversal formation. Cattle had a strong rally 2 weeks ago and then made another new high this week. After making the new high Cattle couldn’t hold on to it. Buyers and sellers fought it out and ended up closing the week near the open. This is a Doji. The neutral end to the week in my view shows buyers are becoming cautious. A red candle close this week would form an Evening Star Formation. This is considered a reversal signal. If cattle takes out last week’s low at 164.40, sellers could take control. The 38.2% retracement lies in wait at 159.90 and the weekly 8 period simple moving average is at 158.6.
Please join me as I take a look at the Livestock markets on October 22, 2014. If you are not able to attend the webinar live, a recording will be sent to you if you register for the event.
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Senior Market Strategist
Walsh Trading, Inc.
53 W. Jackson
Chicago, IL 60604
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Correction then Rally for Corn and Wheat
Feb 26, 2014
Corn gains for the month of February are marginal at 25 cents. Most of the gains came from short covering. Trend following funds were short 142 thousand contracts three weeks ago and now just above 30 thousand. This leaves some longs with profits to take them due to month end profit taking. Should we get some month end balancing I am looking for corn to not break below 4.50 basis May futures. The USDA AG Forum Outlook, which gives thoughts prior to the March 28th planting intention report, suggested corn acres to be planted at 92 million acres vs. 95.4 last year. This will support corn into the March 10 USDA monthly crop report and the March 28 report on planted acreage. The perception will be acreage cuts will be greater March 28th, and we will get the third consecutive monthly decline in ending stocks on the March 10th report.
Wheat gains of 50¢ this month continued off light buying by speculators and short covering. The three week’s prior, trend following funds were short 196 thousand contracts and entering this week just 80 thousand short. The buying and short covering all comes as traders don’t want to be short going into March when wheat breaks dormancy and speculators are buying off anticipation that the drought in the western wheat states will continue. Crop conditions are very low and will challenge the crop to find near perfect weather to catch up. Look for month end profit taking that could take May futures down to a low of $6.00.
I therefore am proposing two trades one in futures and one in options. If May corn futures trade back down to the 4.50 -4.52 level, look to go long futures at this level to eventually challenge the longer term 4.70-4.75 level. A good to cancel stop loss should be entered under 4.40 for downside projection. If we see a pullback to the aforementioned level in May Wheat, I would propose going long the May 6.40 call for ten cents or in cash value $500.00. . The risk on the trade is the price paid for the option plus all commissions and fees.
For those interested Walsh Trading is holding our weekly grain webinar series this Thursday February 27th at 3pm central time hosted by our Senior Grain analyst Tim Hannagan. Tim has been ranked #1 by Reuters and Bloomberg in 2011 and 2012 for his most accurate end of year price predictions for soybeans and corn. Registration is free and if you cannot attend live, a recording will be sent to your email upon signup. Link for registration is below.
RISK DISCLOSURE: THERE IS A SUBSTANTIAL RISK OF LOSS IN FUTURES AND OPTIONS TRADING. THIS REPORT IS A SOLICITATION FOR ENTERING A DERIVATIVES TRANSACTION AND ALL TRANSACTIONS INCLUDE A SUBSTANTIAL RISK OF LOSS. THE USE OF A STOP-LOSS ORDER MAY NOT NECESSARILY LIMIT YOUR LOSS TO THE INTENDED AMOUNT. WHILE CURRENT EVENTS, MARKET ANNOUNCEMENTS AND SEASONAL FACTORS ARE TYPICALLY BUILT INTO FUTURES PRICES, A MOVEMENT IN THE CASH MARKET WOULD NOT NECESSARILY MOVE IN TANDEM WITH THE RELATED FUTURES AND OPTIONS CONTRACTS.