The live cattle market’s roll has stalled through the month of July. There are a two interesting points to be made her. First of all, this is typically a period of seasonal strength in the cattle market. Secondly, there are internal factors suggesting that the seasonal highs for the August contract have been made.
August live cattle prices typically rise as expiration approaches. Historically, this has been due to weather patterns leaving overheated animals in sparse pastures unable to gain weight. However, the typical El Niño pattern throughout most of the Great Plains and Midwest show cooler weather patterns and better pastures. Both of which have been true this summer. Secondly, the price of feed has declined precipitously thus leaving feeders a wide profit margin for fattening thin animals brought in from pasture. Both of these factors combine to mitigate the live cattle market’s historical seasonal tendencies.
Moving to the market internals this chart shows that each recent new high in the cattle market registered successively lower readings on our proprietary momentum indicator. Furthermore, last week’s Commitment of Traders report shows that three straight weeks of commercial selling has been enough to shift commercial trader momentum into negative territory. Negative commercial trader momentum automatically puts us on the lookout for short trades.
The Bottom Line
Most likely, one day higher will push the short-term market momentum indicator into overbought territory in the face of broadly negative commercial trader momentum. We will then be able to sell the market on weakness if provided with a failure top here, short of the recent highs.
