We were stopped out of the cattle short today. When we have a swing or exhaustion candle we will try again.
I did not give you a day to think about the Live Cattle trade I suggested. The research I follow gives indicates this move usually occurs later in the month, but I think it has started a bit earlier. I think that cattle have topped for now.
The risk here should be easy to manage. Go short one February Live Cattle contract at $128.50. Place a stop GTC at $130.8 which is just above the swing high. Your risk will be .2.4 x 400 = $920. The target is the 38.2% retracement at $122.5. This would give a $2,400 profit on the trade.....a 2.5 to 1 return to risk ratio.
Research shows that selling Live Cattle between November 27 and December 8 has averaged a $1034 profit 15 of the last 15 years. Looking at the seasonal chart from Sentiment Trader from November 27 (day 331) until December 8 (day 342) shows a dramatic drop in that time frame.
The optimism index for cattle are nearing excessively optimistic levels. This is what you want to see when contemplating a short futures position......a market which is running out of buyers.
The weekly stochastics and RSI oscillators are at extreme overbought levels. I expect they will turn lower soon.
The contract size of one Live Cattle futures contract is 40,000 lbs. This will be a short term position, probably lasting a month. It would only take just over a $2.60 drop to reach the $1034 average trade profit over the past 15 years. I am looking for some modest exhaustion in trade.
I am not yet ready to pull the trigger yet but could any day. I am awaiting a swing high or an exhaustion candle. If this is the kind of trade which might interest you, I would recommend getting ready now. The margin for one contract is $1,500.
We are couple weeks into the first speculative trade which was to buy July Lean Hogs @ $80.50 back on October 15. . Since then, prices have now moved to 82.85 near the first target I had set. The guaranteed money here is pretty good if you decide to exit the trade. If you sold here, you would make 2.35 X 400 = $940 per contract.
If you decide to continue holding this position, I suggest increasing your stop to $81 to at least guarantee a $200 gain to preserve capital.
Those that know me know that I resist publicly recommending speculative trades. I consider myself a risk manager after all. I do not place clients into situations that increase risk. This page is purely speculative in nature. Do not use farm money for this page.