Where Is The Beef?

Several months ago, I talked about my fascination with Live Cattle and how I felt this commodity was preparing itself for the possibility of a nice run to the upside. Well, given the year-long stabilization in price, I think that run up may be very close at hand.

Reading the Footprints of Cows

The long-term chart above clearly shows that for more than a year, Live Cattle has been trapped in a very predictable sideways consolidation between 80 and 87.50. With Cattle's most recent move back to the upper extremity of this range, it remains to be seen if the resistance in the 87.50 price area will once again hold firm. I say, there are better odds now that the lows will not been seen again for some time and that a breakthrough, while maybe not right away, is closer at hand.

The Mighty Breakout

The breakout is one of the most talked about market events in existence. It is revered as the most profitable play a market participant can exploit and is looked for more diligently than anything else available in our markets today. Yet, to the surprise of most, more than 70% of all breakouts fail. So, wait a minute. If more than 70% fail, why is this event, which only has a 30% chance of success at best, hailed as being so great? It's simple. The few that do work, work big! In fact, the ones that work are typically so substantial, they make the losses from the 70% pale in comparison. So many players are willing to suffer through the failures just to find the winners.

Separating the Wheat from the Tares

Despite the fact that breakouts are widely successful even if you endure the frequent losses, that's just not good enough for me. I not only teach my students how to identify and profit from breakouts, I teach them how to determine which breakouts are likely to be part of the 70% failures and which are more likely to be part of the 30% creme de la creme group. This allows for the vast majority of the duds to be sidestepped, which makes this much talked about play that much more lucrative. The failures share common characteristics just as the winners do. Knowing what these characteristics are is key to sidestepping the land mines and zeroing in on the gems. But I digress. The topic of how to discriminate is beyond the scope of this article today; however, I will be covering it in due time.

My Analysis

I think Live Cattle is finally poised for a break above its historical price resistance at 87.50 for a run toward the 104 price range. But perhaps not before one more pullback, which in my opinion is critical. In fact, the next pullback will hold the all-important key and reveal whether it truly does have the umph it will take to get through 87.50. Here is what I'd like to see.

If Live Cattle flirts with the 87.50 only to ease back off toward the flat 20-period moving average and hold (that is the key element), than the blast-off through resistance would be imminent in my view. In other words, I must now see a pullback that can earnestly be called feeble and weak before I'd trust a major break to the upside. In over a year, we have not seen that and that's the change we need. If this were to occur, I'd be all over the breakout, and would likely add on every subsequent dip after it.

So let's keep a close eye on this overlooked commodity in the next few weeks. It will be a great learning experience for those just getting their feet wet with breakouts and overlooked commodities like this one. Beef may just be ready to make itself known again.

"Where's the beef," you ask? Well, right now it's at 87.35 inching to go higher. Stay tuned.