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S-T Cattle Divergence Could Have L-T Implications

Posted 03/04/2019 10:31AM CT | RJO Market Insights

Live Cattle Apr '19 60 Min Chart

The market’s failure today below Thur’s 128.90 smaller-degree corrective low and our short-term risk parameter confirms a bearish divergence in short-term momentum that defines Fri’s 130.45 high as one of developing importance and at least a new short-term risk parameter from which non-bullish decisions like long-covers and cautious bearish punts can now be objectively based and managed.  The prospect that Fri’s 130.45 high completed a 5-wave Elliott sequence from 13Nov18’s 118.55 low labeled in the daily chart below contributes to a peak/reversal threat that could be major in scope.  Commensurately larger-degree weakness below 14-Feb’s 126.65 next larger-degree corrective low and key risk parameter remains required however to break the broader uptrend.

Live Cattle Apr '19 Daily Chart

 

Live Cattle Weekly Chart

The market’s current position at the extreme upper recesses of the past couple years’ range amidst historically frothy levels in our proprietary RJO Bullish Sentiment Index contribute further to this peak/reversal-threat environment.  Indeed, at a whopping 90% reflecting 130K Managed Money long positions to just 14.5K shorts, this sentiment/contrary opinion indicator warns of potential extreme downside vulnerability once rendered applicable from a larger-degree mo failure below 126.65.

These issues considered, shorter-term traders have been advised to move to a neutral/sideline position as a result of today’s short-term mo failure below 128.90.  A recovery above 130.45 is required to negate this call, reinstate the bull and expose potentially sharp gains thereafter.  Long-term players are advised to pare bullish exposure to more conservative levels and jettison the position altogether on a failure below 126.65 that we believe would expose potentially severe losses.

Live Cattle Monthly Chart

RJO Market Insights