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EXAMINING THE FEEDER CATTLE MARKET

January 07, 2020

I picked the Feeder Cattle market because it gives me an opportunity to better explain how I use the LAWG 647 Trading Model (Model).  You see according to the Model the March Feeder Cattle market has been in an uptrend since September 27, 2019.  It reached a peak and became unbalanced to the upside in early November and since that time has weeks ago and since that time has chopped around in about a five-dollar range.  It took that long for the Feeder Cattle market to correct the unbalanced situation.  This takes us to the close of last Friday and what the Model told me.

For those that receive my weekly letter Trends and Reversals this is what you knew Sunday afternoon.  March Feeder Cattle remained in an uptrend.  You knew that the close on Friday January 3 was already below the price needed on January 10 to reverse the trend. You knew that the Positive and Negative indicators were both within the first standard deviation of the long-term average.  You knew given all this information that March Feeder Cattle had entered the Red Alert status.  Finally, you knew that my recommendation was to stay with the trend and look for values to buy.  I received a bit of flak for that recommendation after all the market closed lower on the third than the price needed on the tenth to reverse the trend.  So, let us look at the reasoning.

It took the Feeder Cattle a lot longer than what I think is the normal time to go from being upside unbalanced to being rebalanced and yet the market could not affirm a negative trend.  Next let us understand Red Alert status.  Red Alert status is signaled when certain market forces exert themselves. When this comes to pass it is my opinion that more times than not there is a greater chance for a significant market move.  Be advised it does not happen all the time.  So, to review thus far we had a Red Alert status in a rebalanced market.   The final piece came in examining the Positive and Negative Indicators.  The Positive Indicator had become overly rebalanced and had gone negative.  In fact, the Positive Indicator value was the same as the Negative Indicator value which is an extremely rare occurrence.  The only way this condition could be rectified was if the market rallied.  Did it have to rally? Nope!  But in my opinion, its odds strongly pointed to a rally.  Now to be fair, it does not always work, I am not always right………. but I will usually follow the odds.

My name is Lee Gaus and if you would like to see more of our thoughts go to our website ifgfutures.com. There you will also find articles written by my partners Tom Fritz, Steve Erdman. If you have any questions you can reach me at 1-877-304-1369, 312-384-1166, or email me at[email protected]. If there is a commodity you would like me to address shoot me an email.

There is significant risk involved in trading futures and/or options on futures. Futures and/or options of futures trading may not be suitable for all investors. Investors should consider these risks and evaluate their suitability based on their financial conditions. Past performance is not indicative of future results.