Feeder Cattle Futures Bubble?

Some months ago, in March, I wrote a Little post in my Spanish blog about the bull market in the livestock markets. There was a lot of people saying that those markets were in a bubble that was about to burst.

The interesting moment to go bullish in those markets was in 2013, when there were major multiyear breakouts. From there to March 2014, there was a huge rise. However, and from my experience, back in march the best option for a short term trader still was to go long (another thing would be for a medium term bet of 2 or 3 years). No matter how high the prices looked. That is how the stock market works. We should never forget what Livermore said: “prices are never too high to begin buying”.

It is normal that every bull market has its end. A trader will quite often trade the last stage of a bull market (if the trader did not “see” that market before or did not decide to enter earlier) and lose. That is why traders use the sacrosanct stop loss order. That is our way to pay for our insurance in the markets.

It could have happened that the bull market in livestock ended in March 2014. Looked at the charts, almost everybody would be scared to death to go long. Many would be tempted to go short and try the typical: “selling a top”.

When I wrote it in March, I talked about Tyson Foods, Feeder Cattle and Lean Hogs futures.

As for Tyson Foods, March was practically the end (till now) of the bull market, and therefore going long there would have resulted in a loss. Now the market is retesting the 42 $ level and seem not to know where is heading.


Tyson Foods Stock


The interesting moment to go bullish in Tyson Foods was in summer 2013 when the stock broke the 26 $ level, a 15 years top. And when a top of that magnitude is broken you should know that the probability of a major move is very high. Effectively, the stock rose 80% after that.

As for Lean Hogs futures, the market rose a bit more from March till 133 $, but in that case there was a bearish reaction. A long position in March would have been a loss using a tight stop order. In fact, the best signal in this asset was a selling one: when the price broker the 112 $ small bottom of this year.


Lean Hogs Futures


In this light, it seems that trading the long side was at that moment (March), after rises of 30 to 80% in a few months, was not a good idea. When we look what happened to the Feeder Cattle Futures, which seemed to be in a bubble, being long there was not that bad after all. The price skyrocketed a 45% from March till 245$. That is a nice long trade.


Feeder Cattle Futures


These examples are valid to show that even when the assets have risen dramatically; and no further raises seem possible, we can still see rising prices in a significant way. This is true for any market, being it forex, futures, and notably stocks.

P.S. This is a personal translation from my spanish blog http://www.brokerparacompraracciones.com Thanks for reading.


Charts Courtesy of tradingview.com


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