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.
The Speculation page is used for educational purposes and to talk about our opinion on trades and what is going on in the market. All trade recommendations are made in "The Pit". This is also a blog page where you can ask questions, post your thoughts, or ask for help. Be sure to use an anonymous name. If you have any questions feel free to reach out to us via email.