Elliott Wave InternationalmyEWISocioniomics.Net
Home > Commodities

What’s Driving Live Cattle Prices Down?
In November 2012, Monthly Futures Junctures anticipated the turn in live cattle

By Nico Isaac
Wed, 20 Mar 2013 17:30:00 ET
Add to Facebook Add to Twitter Email to a friend Printer Friendly

It may sound a bit far-fetched, but navigating trend changes in financial markets is like riding with a long-distance cattle drive. Hear me out: In both cases, the best position is at the front of the herd, which is actually reserved for the most skilled, senior cowhands.  

It follows that the worst position is behind the herd. This area is reserved for novice cowboys (called “pilgrims”) or insubordinates. It’s also known as the “dustbowl” for the clouds of dirt that the herd kicks into the riders’ eyes.
 
Let’s take the association one step further and apply it to the recent price action in live cattle. In late 2012, live cattle prices were rallying to new contract highs. And, according to the mainstream pundits, the 'fundamentals' would keep prices moving due north. Here, the following news items from the time set the scene:
 
·         “There are the ingredients for a bullish formula in cattle prices… An outlook for a sharp drop in beef production this year remains the main foundation for… an uptrend in cattle.” (CME Group)
 
·         US cattle herd at its lowest level since 1952. The uptrend remains firmly intact.” (Associated Press)
 
·         “Hopes of a US ‘fiscal cliff’ resolution ignited fund buying across a wide range of commodities, including cattle. In this environment, no one will be able to stay on the short side for long.” (Reuters)
 
Rather than driving north, however, live cattle prices turned south in a precipitous slide to the recent contract lows. The mainstream riders who thought they knew what the herd would do found themselves covered in dust.
 
The reversal in live cattle prices did not catch everyone by surprise. In the November 2012 Monthly Futures Junctures, EWI’s senior commodity analyst and Futures Junctures Service editor Jeffrey Kennedy remained one step ahead of the herd. There, Jeffrey presented an exclusive print-and-video “Featured Market” segment on live cattle that included this bearish message and chart:  
 
 
 “This month we explain why the bearish forecast is momentarily on hold. Much of our analysis remains on track… Should prices exceed 135.90, we will embrace the alternate labeling. Those wave counts allow for moderate additional rally beyond 135.90 before beginning a multi-month bear market that will push prices” significantly lower.
 
The next chart comes from Jeffrey’s March 19 Daily Futures Junctures. It shows how cattle prices have followed the Elliott wave pattern.  
 
 
 

Real Time Trading
  

Free 32-page eBook
Commodity Trader's Classroom

While commodity markets are known as some of the toughest trading environments around, these actionable lessons from skilled veteran Jeffrey Kennedy can help you trade commodities, or any market for that matter, with more confidence. Download your free eBook now.


© 2014 Elliott Wave International

The Elliott Wave Principle is a detailed description of how financial markets behave. The description reveals that mass psychology swings from pessimism to optimism and back in a natural sequence, creating specific Elliott wave patterns in price movements. Each pattern has implications regarding the position of the market within its overall progression, past, present and future. The purpose of Elliott Wave International’s market-oriented publications is to outline the progress of markets in terms of the Wave Principle and to educate interested parties in the successful application of the Wave Principle. While a course of conduct regarding investments can be formulated from such application of the Wave Principle, at no time will Elliott Wave International make specific recommendations for any specific person, and at no time may a reader, caller or viewer be justified in inferring that any such advice is intended. Investing carries risk of losses, and trading futures or options is especially risky because these instruments are highly leveraged, and traders can lose more than their initial margin funds. Information provided by Elliott Wave International is expressed in good faith, but it is not guaranteed. The market service that never makes mistakes does not exist. Long-term success trading or investing in the markets demands recognition of the fact that error and uncertainty are part of any effort to assess future probabilities. Please ask your broker or your advisor to explain all risks to you before making any trading and investing decisions.