Wrangling Inflation

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

Don’t fight trends. It never ends well.

Learning to go with the flow often comes with age and experience. Lucky for us, we have plenty of both at All Star Charts as the current cycle isn’t our first rodeo.

We’ve been pounding the table on the energy trade, gracefully accepting all of this inflation and the outrageous prices at the pump.

What can we do about it? 

We can own the strongest commodities that continue to benefit from this inflationary environment. It’s really that simple. 

Let’s take a look at one of them now.

Here’s a zoomed-out chart of live cattle futures:

Last August, we covered live cattle, anticipating a breakout from a multi-year consolidation. Price chopped around the upper bounds of its range for a few months but ultimately resolved higher, completing a large basing pattern.

Since then, it came within striking distance of our initial objective ~151 before falling back toward the upper boundary of its prior range.

Now that it has successfully retested the former breakout level ~130, we can redefine our risk here for another shot at our original target.

As long as live cattle futures are above ~130, we can trade against that level, targeting ~151.

We think the upside potential for cattle is much higher making a secondary objective ~185 a legitimate possibility.

Prices are rising at the pump and in the supermarkets. We can choose to ignore and fight these trends. Or we can embrace them and profit.

Live cattle is offering us a nice way to profit off this trend right now. We want to take advantage of it.

COT Heatmap Highlights

• Lean Hogs: Commercials are within 3% of their smallest net short position in three years.
• RBOB Gasoline: Commercial hedgers reduced their net short position within 5% of a three-year record.
• Palladium: Commercials added to their net long position, inching within 4% of a three-year extreme.
• US Dollar Index: Commercial hedgers remain within 5% of their three-year record short position.

Click here to download the All Star Charts COT Heatmap.