As noted in an earlier post from today, cattle are one of the very few commodity markets in which hedge funds have been overwhelmingly big longs. They have pushed and shoved, and pushed and shoved on this market for nearly two months now, even as the rest of the complex ( the GSCI) has been plummeting lower.
In my mind, it was thus just a matter of time before they gave up the ghost. While the longs have been reaping huge profits, the hapless bears have been handed their heads and then some. Margin clerks have been extremely busy phoning small specs on the short side of this market and telling them to either pony up some more cash or close out their badly losing positions.
Today, maybe, possibly, we have seen this complex top out. For me it comes back to the demand side of the equation. High priced beef in an economy that is not growing all that rapidly and in which wages are stagnant/flat will price itself out of the demand chain. While falling gasoline prices have freed up a bit more disposable income for consumers, it is hardly enough to justify the kinds of prices we have seen at the grocery counters.
I want to see how these things close out the week tomorrow but for now, it could be another commodity futures market is succumbing to the general downward price trend, albeit from extremely lofty levels.
One reason I am hesitant to get too bearish on these things is because of what they did back in early August. The beef got too expensive, it moved lower and down went the moo-moo's only to have uncovered strong demand at the wholesale level at those lower prices. That sent the cattle market right back up again, this time to make all-time record highs.
As far as a longer term top in this market, I would need to see this contract fall below the September low before being more confident that this is merely the beginning of a correction in an ongoing bull.
Incidentally, since this morning's early post, I am noting that the HUI has dropped even further as it is moving with the broader equity markets and essentially following the S&P 500. However, the latter is down 1.86% as I type these comments while the HUI is now down 4.8%.
The GDXJ is being savaged even worse as it is off nearly 6% today.
Switching briefly to the broader markets - here is the Russell 2000. Talk about something that looks potentially devastating. The close tomorrow to end the week will be extremely important from a TA standpoint. The index has fallen below the key support level noted, a level which I should add that has held the market on the downside for over a year now. Currently the index is off its peak nearly 12%. A correction is usually, for TA purposes, defined as a 10% fall off the top. Bear market territory begins, again for TA purposes, at 20% off the peak. Thus we are in the nether-realm ( Mortal Kombat fans) between the two.
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