General Comments:
There really was no surprise in live cattle futures as the market followed through from Friday. Tuesday will be critical technically. A break below support at the 20-day moving average could trigger further liquidation despite strong underlying cash support. One has to wonder why futures could not "catch" and trade higher when boxed beef prices increased nicely again. It is clearly evident that strong demand has not run its course. The chart action is almost identical to price action on March 18 and 19. The liquidation phase due in part by an overbought market may have run its course. The key will be whether trades will step back in to buy. The strong potential for higher cash and continued strong boxed beef should provide traders with the confidence the market has more upside. The Commitment of Traders report showed funds were net buyers of 8,647 contracts increasing their net-long positions to 91,884 contracts.
April, May and June hog contracts made new highs Monday. May and June quickly became the victims of aggressive selling posting triple-digit losses along with the other contracts through the end of the year. April closed higher as it remains close to cash with three days left to trade. Even with significant losses, the trend is still up as there was no breech of the trend line. This is another healthy correction to a bullish market. The selling was technical in nature, not fundamental. Cash was higher Monday, but cutouts slipped lower, but not enough to cause concern. The Commitment of Traders report showed funds as net sellers of 1,179 contract reducing their net-long positions to 76,933 contracts.
| BULL SIDE | BEAR SIDE | ||
| 1) | After two days of liquidation, traders should be interested in buying futures due to bullish underlying fundamentals. |
1) | The break in live cattle futures may not yet be sufficient for traders to buy the market for the long haul. It may take a test of price support to generate aggressive buying. |
| 2) | Cattle futures did not penetrate support, keeping the uptrend intact. Feeder cattle futures closing higher Monday might lend a helping hand to live cattle contracts Tuesday. | 2) | The anticipation is for higher cash cattle this week, but the break in futures could leave packers less aggressive until they see the strength or weakness of boxed beef and weekly exports. |
| 3) | Hog futures closed above the steep uptrend line, which should provide confidence to traders to buy this break. Overall fundamentals have not yet changed. |
3) | It is possible the price correction of hog futures has further to go before the selling runs its course. Liquidation generally runs two to three days. |
| 4) | The action Monday relieves an overbought market. Traders may rebuy the break or add to already long positions. | 4) | Weaker pork cutouts could indicate a slowing of demand. Traders may not be quick to buy into the market unless a strong increase of cutout prices are seen. |
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