Analysis: Meat Futures Complex

Hi everyone, this is Erich from Traders Helping Traders with a chart analysis case study for the meat markets.

In this chart, live cattle and feeder cattle are more or less moving in opposite directions, which is very unusual. Live cattle is even stronger than feeder cattle and that is unusual as well. Usually you will see feeder cattle take the lead in the market but right now live cattle is setting the pace.

On Friday we saw the market confirm support which gives us an opportunity to buy this market higher on Monday. You can see we started off the week by putting in resistance which is a green bar-red bar. From here the market pulled back slightly and then on Thursday, Friday we got a confirmation of support with a red bar-green bar.

This is a little bit on the risky side for two reasons: first off, we are up against resistance that topped the market out last week. Secondly we’re also trading a fair distance from our moving average lines, you can see we’re well above our 20 and even further above our 55. The further the market moves from these moving average lines the greater the tendency will be for a retracement back first to the 20 and then to the 55 and perhaps even in the longer term all the way back down here to the hundred.

That could be a little ways off though, and because we do have a confirmation bar we need to set up to look to buy the market higher. So what we’re going to do is, we are going to look to buy a breakout above Friday’s high which was 105 45 and I probably want to give the market at least twenty cents before buying the low, which was 10 for 20.

I’ll be a little bit more aggressive covering the trade because if we break the high the idea is that the market will continue higher still, so if it breaks the high and then reverses on itself I just don’t want to be in that market. So let’s see what we’re doing for risk… risk we’re up to about six hundred dollars, just shy of six hundred dollars.

It looks like our profit target – well I’m actually going to play that pretty tight – I probably look to take profit, well three hundred dollars. You can see the market should be able to put in a $300 range perhaps even challenge the highs at 106 15. It is a little bit of a crap shoot trade but I’m fairly confident that if the market does not break the high then we will definitely look at setting up a sell trade.

So if Monday’s session does move lower then that will get us into a position to short this market, and if Monday’s session moves higher, well then it should move at least high enough to find our profit target at 106 40.

And that is your chart analysis case study for the meat markets!

This chart analysis case study was first published on Traders Helping Traders in 2008.

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