Slow Accumulation And Growing Fear In Live Cattle Market
Eric De Groot | Oct 28, 2015 07:02AM ET
The cycle of accumulation and distribution defines cause (building) within mark down for live cattle.
Cattle has been building cause since September. Beef producers have been watching a market in steady decline for months. Activity in feedlot areas likely will be limited to distribution of new showlists. Slow accumulation and growing fear has smart money watching for signs of strength (SOS) as precursors to larger short-covering rally.
Price
A negative long-term trend oscillator (LTCO) defines an down impulse from 149.28 to 136.68 since the fourth week of April (chart 1). The bears control the trend until reversed by a bullish crossover. Compression, highlighted by white circles, generally anticipates change. Near expansion urges continued patience from the bulls.
A close above 149.50 jumps the creek and transitions the trend from cause to mark up. A close below 123.08 breaks the ice and returns the trend to mark down.
Cattle's trend, a comparison of down (red boxes) versus up (green boxes) impulses, defines an increasingly trending market and a source of profit for the bears since early 2015.
Chart 1
Leverage
A positive long-term leverage oscillator (LTLO) defines an up impulse and bear phase since the second week of July (chart 2). The supports the decline (see price).
A diffusion index (DI) of 47% defines moderate Q2 accumulation (chart 3). A capitulation index (CAP) of 55% supports this message (chart 4). DI and CAP's trends, broader flows of leverage and sentiment from extreme accumulation (green dotted line) to distribution and extreme fear (green dotted line) to complacency supporting the bulls (red arrows), should not only continue to extreme concentrations but also restrain downside expectations until reversed (see price).
Continuation of the decline within these trends represents a SOW.
Chart 2
Chart 3
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Chart 4
Time/Cycle
The 5-year seasonal cycle defines weakness until the second week of December (chart 5). This path of least resistance restrains downside expectations (see price). The failure to do so represents another SOW.
Chart 5
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