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February live cattle closed .55 lower on Friday marking the 7th consecutive close lower. Futures are off 13.85 since we marked contract highs 24 sessions ago. It is interesting to note that 24 sessions prior to marking those contract highs we were trading at the exact same price as last Fridays trade. Lower cash prices and long liquidation from the funds have certainly been two key catalysts in the recent decline. Cash prices were lower with a bulk of the trade from 117-118.50. Fridays Commitment of Traders report showed that funds reduced roughly 4,000 live cattle positions to put their net long at 116,000. Fridays report also showed that the funds net long Feeder position was reduced by roughly 1,000 to 13,200; keep in mind that this data is compiled through Tuesdays session and does not account for the back half of the weeks trade.
On the technical side of things, the cattle complex is more oversold than it has been in a long time which leads us to belief that a relief rally or consolidation would be healthy for the market. The relative strength index (RSI) is at 30.80, the most oversold this February contract has ever been. Last week we talked about 118 being a key support level, representing a key Fibonacci retracement level from the August lows to the November highs. A break and close below could encourage additional long liquidation towards 116.35. On the resistance side of things, 119.35 is the first line in the sand, this represents the 100-day moving average. A close above opens the door to a run back towards 120.70 which is the middle of the range from the August lows to the November highs. This week’s trade will certainly be interesting to watch, both technically and fundamentally.
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