Feeders/Live Cattle Spread: The Short Sale Signal Was Triggered Today

Feeders/Live Cattle Spread

A lot has happened in the last eight days. Last week the October feeder/live cattle spread closed less than $100 away from the January 5th high of +$49,410, which is currently the high for 2015. Today it closed at a two-month low. Switching from a multi-month high to a multi-month low indicates that the tide has turned in favor of the bears.

Today’s close below price support at the May low of +$46,890 (premium feeders) triggered the hypothetical sell signal for the blog. A short position would have been initiated by selling one 50,000 lb. October feeder cattle at 212.075 (a contract value of $106,037.50) and simultaneously buying one 40,000 lb. October live cattle at 150.725 (a contract value of $60,290). This opens up a spread position at +$45,747.50 (premium feeders).

October Feeder Cattle Live Cattle spread daily

October Feeder Cattle Live Cattle spread daily

Initially, we will risk a two-day close above +$49,820. This is $500 above the June top.

As we’ve mentioned before, this spread has over $25k to go before it returns to a historically normal level. The October feeder/live cattle spread has a lot of profit potential on the downside. We will be watching to see how things unfold. If we’re lucky, a few countertrend rallies along the way may provide us with setups to add to the short position. We shall see.

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