June live cattle futures at the Chicago Mercantile Exchange on Monday jabbed to another fresh contract low of 74.15 cents a pound. Since late January, the June contract has shed around 12 cents a pound, amid a steep 2.5-month-old downtrend line that is in place on the daily bar chart.
While weary bulls are hoping for at least some type of upside “correction” in the near term, the price downtrend in the June contract is still very powerful. The 14-period Directional Movement Index (DMI) overlaid on the daily bar chart for June live cattle shows an ADX line reading of 62.56. Any ADX line reading above 30.00 is suggestive of a strong price trend being in place in a market.
For the bulls to begin to regain some good upside technical momentum, they will have to push June live cattle futures back above solid technical resistance at 80.00 cents a pound. Below that level also lies chart resistance at 76.00, 77.00, 78.00 and 79.00 cents.
While the cattle market bulls are in firm technical command at present, the market is short-term technically oversold. The 14-period Relative Strength Index (RSI) showed a reading of 25.19 at the close Monday. Any RSI reading below 30.00 does suggest a market that is overdone on the downside and due for at least a corrective upside bounce soon. The RSI hit a low reading of 11.65 on March 29.
For perspective, the last time the June live cattle RSI was at such a low reading was in late July of 2005, when the indicator registered 19.22 on July 25. Then the RSI turned back north. In late July, June live cattle futures sputtered for a couple weeks and then in mid-August began a solid uptrend from a low of 78.80 cents to a high of 88.00 cents on Jan. 10.
The weekly continuation chart for nearby live cattle futures shows that prices have fallen steeply the past few weeks, and are approaching major support at the 2005 low of 78.05 cents, basis nearby futures.
The Moving Average Convergence Divergence indicator overlaid on the weekly live cattle futures chart shows a bearish line crossover occurred just recently. Both lines are now headed toward bearish territory below the horizontal “zero” line. The last two times bearish line crossover signals have occurred on the weekly chart, after both lines were trading solidly into bullish territory (above the zero line), prices dropped to a low of $78.05 in July of 2005, and to $73.50 in February of 2004.
Source: Jim Wyckoff is a technical analyst and the proprietor of the analytical and educational advisory service, “Jim Wyckoff on the Markets.” He does not trade commodity futures. His email address is email@example.com, Tel: 1-319-277-8643 and please visit Jim’s website www.jimwyckoff.com