Morning Futures Roundup

Live Cattle Prices Recover After Long Liquidation Rout 

Fundamentals
Live Cattle futures prices are continuing to rebound, after a steep sell-off at the end of September upended the recent bull trend. Optimism returned to the Cattle market on Friday, when the monthly employment report for September showed the US jobless rate fell below 8%. Any signs of an improving economic outlook are typically viewed as supportive to the beef market.

Longer-term Cattle bulls will note that the most recent Cattle On Feed Report showed Cattle placed on feedlots totaled only 89.1% of last year's totals, which could lead to much tighter supplies of market-ready Cattle in the 1st quarter of 2013. For shorter-term traders, the price outlook is mixed, as lower slaughter numbers are being offset by much higher weights of market-ready Cattle, which should help to keep current supplies more than ample to meet current demand.

Feeder Cattle prices have begun to stabilize as the price of Corn has fallen off records highs. Many large speculators have been liquidating their net-long positions in Live Cattle futures, with the most recent Commitment of Traders report showing a decline of 16,416 net-long potions for the week ending October 2nd. Should the recent price trend continue to be positive, we may see these liquidated positions being bought back, especially if prices trade above resistance at the 20-day moving average in the front-month December futures.

   Technical Notes
Looking at the daily chart for December Live Cattle, we notice what may be a "bear flag" chart formation. This chart pattern is normally formed by a sharp decline in prices on heavy volume which is followed by several sessions of sideways-to-higher prices, but on weaker trading volume. This bearish pattern will be confirmed should prices make new lows for the move on higher than average volume.

The recent price correction has taken the 14-day RSI from near oversold levels to a more neutral stance, with a current reading of 49.12. The 20-day moving average, currently near the 127.300 level, looks to be the next resistance level for December Cattle, with support found at the September 27th low of 123.950.

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About Mike Zarembski

Born in the grain pits of the Mid-America Commodity Exchange (MidAm) in the early 1990s, Mike's futures career soon shifted to the offices of TD Waterhouse in 1999, followed by Xpresstrade in 2002 and eventually optionsXpress in 2007.