From the Desk of Ian Culley @IanCulley
Holy reversals, Batman!
The tactical direction flipped for the dollar and rates this morning on the heels of stronger-than-expected job growth.
Whipsaws are dotting the charts, erasing weeks of progress.
How should we react?
Today, I want to show you a trade we can take to sidestep the market chop.
Live cattle futures are posting modest gains today (up roughly 0.50%) as they mosey toward last year’s high.
Most importantly, they’re shrugging off the broad intraday volatility.
Plus, the structural uptrend remains intact. And I can’t help but wonder if and when lean hogs will catch up to cattle.
Check out live cattle overlaid with lean hog futures:
These two markets tend to peak and trough together, often trending in the same direction.
Interestingly, cattle and hogs diverged in 2022. Live cattle futures rallied to a new all-time high while lean hogs wallowed in fresh multi-year lows.
I outlined a trade setup for hogs at the beginning of the year, highlighting a potential bullish reversal and the November pivot low as our risk level.
Those November pivot lows held. But price is finding resistance at a shelf of former highs, and volume is rolling to the April contract.
Here’s how I want to enter a new position in the April contract:
Last September’s closing high of 85.75 marks the breakout level.
I like buying a break above that level with an initial target of 91.50 (contract high) and a secondary objective of 100 (key level on the continuation chart).
But I’m out if the breakout fails to close above our risk level on a daily basis.
Full disclosure: Like most commodities, lean hog futures hand out whipsaws without hesitation. You must manage risk.
But livestock futures typically carry a risk uncorrelated to interest rates and the US dollar – the main culprits of today’s volatility.
Are you buying hogs above 85.75?
If not, did you buy hogs against the November low last month?
Let me know. I love hearing from you.
– Ian
COT Heatmap Highlights
- Commercial hedgers’ long exposure to corn reached a new record.
- The 10-year Treasury note is attracting commercial buying as hedgers pull within 7% of a new three-year extreme.
- And commercials hedgers piled on more than 120,000 contracts of soybeans over the trailing four weeks, posting their largest long position in three years.
Click here to download the All Star Charts COT Heatmap.
Trade of the Week
Today, we’re highlighting Simpson Manufacturing $SSD, an $8B company specializing in wood construction products:
SSD posted new all-time highs on absolute and relative terms at the end of last year. Since then, price has pulled back to a key extension level of approximately 181.
That’s the level we want to trade against.
We want to buy SSD against 181, targeting 245 (261.8% Fibonacci extension) in the coming 3-6 months.
To be clear, Simpson Manufacturing is someone else’s problem below our risk level.
Thanks for reading.
And be sure to download this week’s Commodity Report below!
Allstarcharts Team
