For all the reasons I explained below, I do feel that cattle futures are now for buying. The chart below shows how severely cattle have been beaten up. Prices are at an extreme level below the 200 day moving average. The green arrows on the chart below show that the extreme stretch above the 200 sma back in November last year is the same distance we are below the 200 sma now. Given how stretched the dollar is now, and how stretched the rest of the commodity complex is, I think it will be very difficult for this market to fabricate one more major drop. The only pause I have is that the commodity channel index shows some room for prices to make one more drop. If we were there now, I would be 100% bullish. At the moment, I would be 75% bullish.
One of the ugliest charts you will see anyplace will be Class III Milk Futures. Again, this is not a place to go into panic selling on the milk. Being tied very close to the dollar, remember how stretched the dollar is. Milk is stretched to a greater degree below. A modest pull back on the dollar should yield a bounce back on the milk to at least $14.4 and probably to $14.90 according to the Fibonacci retracement levels I see.
In my opinion, there will be a better situation ahead to set a floor under this milk market, either with LGM or using an option strategy.
The best opportunities come at extremes. Professional traders make their living by spotting assets which are over priced and looking for assets which are undervalued, at least in a free market. When bubbles occur, it can stifle a free market while at the same time creating extremes.
The constant intervention by the FED has pushed stocks to all time highs. With the cost of money being nearly nothing, why not borrow money and put it into the stock market? If the market begins selling off, you get a round of QE or operation twist, or perhaps even some smaller interventions which do not warrant any sort of name. The fed has your back with the stock market, so why put money into commodities?
On Monday, commodities did something it had not done since before 1975 when the CRB index broke below 175. This is sort of a reverse bubble, because money has been invested into the sure thing in the stock market instead of commodities.
The chart below contains what I believe to be several items which contain a lot of information. The top chart is stocks, the middle chart commodities, and the bottom chart the dollar. These are longer term charts.
These are longer term charts which show what average values are for each. When I see this, I notice:
1. Commodities at their 3 year timing band for a rally.
2. Stocks overdue for a 7 year cycle low.
3. All three charts are at extreme levels above or below their normal average. Notice the horizontal curvy line. It becomes difficult to break to levels much higher or lower until a correction occurs.
Stocks do not have to go lower, but I believe it will be difficult for it to go a lot higher unless the Fed announces a new round of Quantitative Easing. Stocks, and the dollar, could just move sideways. Commodities are much less inclined to just move sideways however at these levels. Eventually, commodity producers cease producing. As they say, the solution to high prices are low prices, and the same can be said for low prices.