It [diamond pattern] is rarely found in perfectly symmetrical and clearly defined form: a certain amount of latitude must be taken and is permissible in drawing its boundaries.
Schabacker’s the authority, so I’ll give myself some wiggle room.
I see a broadening price action that began last June, leading to a contraction or coil.
If the December pivot low fell more in line with the June 2023 and April 2024 pivot lows, we would have a potential double top. But that’s not the case.
Either way, a decisive close below 177 flashes a sell signal with a downside target of 130.
On the flip side, a breakout above the 2023 high of 192 turns our outlook higher toward 215.
But if I were to take a long position, it would be in feeder cattle:
Feeder cattle is the stronger of the two contracts. Price is challenging the upper bounds of a similar diamond pattern. A breakout above 260 to new all-time highs could lead toward 288.
Regardless, I’m more interested in the short side of this market.
A head and shoulders is forming above last month’s lows as bullish momentum wanes:
I like shorting feeder cattle futures if sellers drive price below 250, setting an initial target of 234. A decisive close below our first downside objective completes the diamond top with a rough target of 175 (though buyers may defend the 210 level).
Both cattle contracts have rallied to new all-time highs but have yet to experience a meaningful downside correction.
Remember, cattle futures are a commodity traded in Chicago. They don’t act like the publicly traded companies on Wall Street.
It’s an escalator up, elevator down for commodities – even during bull markets!
I expect cattle futures to drop a few floors, but only once these diamond tops resolve lower.
–Ian
COT Heatmap Highlights
No report today. The CFTC will update the Commitment of Trader report on Monday.
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