Commodities Weekly: Holy Cow!

From the desk of Steve Strazza @Sstrazza and Ian Culley @Ianculley

Breakouts continue to emerge left and right within the commodity space as participation expands to more and more subgroups. 

One of the areas that’s had our attention lately is Livestock. Last month, we highlighted lean hogs. 

And while they’ve since fallen back below our risk level, we’re now seeing cattle futures attempt to break higher from a similar base.

Let’s dive in and outline some long setups in these livestock futures as they’re offering a favorable risk/reward at current levels...

First up is a weekly continuation chart of Feeder Cattle futures:   

We can’t ignore this 5-year base as buyers finally appear to be taking control after a handful of tests at these former highs dating back to 2016.

As the old saying goes…  

The more times a level is tested, the more likely it is to break.

And that’s exactly what is happening in feeder cattle futures right now.

What appears to be a messy breakout zone on the weekly chart becomes much more clear and organized as we zoom in… 

Below is a daily chart of the October contract in Feeder Cattle GFV1:  

The majority of the trading volume is currently in the September contract, but it’s set to roll to the October contract (GFV1) in a couple weeks.

Most importantly, GFV1 provides a well-defined risk level to trade against at key former resistance turned support.

We want to be buyers if and only if we’re above the April 7th close of ~163. That’s our line in the sand.

If we’re above it, we're long with a target of 191 over the next 1-3 months.

On the flip side, if it falls back below our risk level - as Lean Hogs did, we want nothing to do with it.

And just like Feeder Cattle, Live Cattle is on the brink of resolving higher from a nearly identical basing pattern:  

If you like one of these charts it’s hard not to like both. While Live Cattle is still a few ticks away from our breakout level, we see no reason why it shouldn’t follow Feeder Cattle higher.

Buyers have been absorbing more and more overhead supply at these former highs and it looks like they’re finally ready to punch prices higher.

Here is the October contract:  

We want to be long but only on strength above ~130 with a 1-3 month target of 151. 

If one of these trades works, both are likely to. And the longer Feeder Cattle remains above its breakout level, the higher the odds are that we'll see Live Cattle follow.

As always, let us know what you think. We love hearing from you.

Thanks for reading, and be sure to download this week’s Commodity Report below!