Both feeders (CME:GFU14) and cattle (CME:LEQ14) have been in extended bull moves. And that is an understatement. Everyone is scratching their head and asking the same question. When will we see a top?
When cattle made a low in 1976 at 35.10, they rallied to 80.25 before having what was considered a major correction at that time, 24.00 points to 56.05, almost half of the original gain. They then traded in a range from roughly 50.00 to 84.00 for several years – from 1979 to 2003. That’s 24 years! In 2003 they finally broke out and rallied to 102.92.
Since then their whole trading behavior has changed. No longer did they linger for years in a trading range. Instead within five years they rallied up to 107.05 before having a major correction down to 78.70. Since then their aggression has increased. Within five years they went from 78.70 up to 147.00! They almost doubled in price from the 2009 low to the 2014 high.
So where are they now? Currently they are testing the 147.00 high. That entire major wave up from the 2009 low has had, so far, five minor waves up on the monthly chart. Technically markets move in three or five waves. So is this test of the high going to fail? Or are they going to establish a sixth wave? No one can answer that, of course. But if they are starting a sixth wave, it has projections to 165.00 for cattle. And with a projection to 210.00 in feeders to support that potential, it could occur.
I have pointed out several times that when cattle start to give technical indications of a top, they are repeatedly dragged along by the feeders who are trading like the energized bunny. They just “keep going and going.” To date the feeders have not given the slightest indication of a top long term. In fact the current major wave up on the monthly chart has projections to 210.00, as already mentioned. The high so far is 205.25.
And like cattle, feeders traded in a range from 2004 to 2008, but nothing like the extended consolidation seen in cattle. But the point is that cattle and feeders are in a new realm brought about by a perfect storm of fundamentals. So the dynamics are different. At least that is what the markets are suggesting to me.
Will any of this end soon? Maybe not. Both cattle and feeders are very different markets than what they were several years ago because the fundamentals are different than they use to be and they do not appear to be changing any time soon. The rallies have become very extreme and not the predictable up and down of years past. So it seems we are dealing with very different markets and that realization is possibly more important. Expectations of a top may be meaningless in the whole scheme of things. And interim corrections are the new norm.
So for now possibly the projections mentioned above is better than just scratching our heads?