Posted on: 6/02/2016
By Gary Lark
There are valid arguments on both sides of the direction debate. It might seem that sideways is the rational call, but I am not sure “rationality” leads to profitability except in hindsight. I often reflect that if I were rational I wouldn’t be in this business or I would have shot myself long ago. I’ve concluded that my survival is due to the balance of sorts between the rational and irrational.
We are off the recent lows, but shy of the May highs. Support of both a technical and fundamental nature has underpinned this market each time we drop under 120.00. As we close in on another Friday, the action today and tomorrow will color attitudes going into the month of June. So far this week, we have breached the levels prior to the Cattle on Feed report break. Short term indicators had become overbought, but yesterday the market relieved some of this by going sideways. Unless this changes, it alters the pattern of free-fall that has followed similar situations over the last months. As I am writing this, June futures are pushing to new highs for the week on optimistic talk for the yet to develop cash trade. The closely watched long term moving averages are flattening out. Cut-out values were higher yesterday, but how the beef trade finishes this post Memorial Day week will be a clue to clearance and demand. There are numerous outside influences that should be making the bears cautious about pressing breaks. Macro-economic data released this week is all supportive from a consumer demand perspective. The “sell commodities” thrust appears to be abating.
On the other side of the ledger, demand, technical and seasonal factors argue against penetration of overhead resistance. The 100 day moving averages, which have proven formidable, loom large. After meat is booked for Father’s Day and the July 4th holiday the “dog days of summer” are on the horizon. June Live Cattle options expire tomorrow and Monday is first notice day. On what kind of note we finish this week, the tone for June might be set.