Just the Beginning?
Yesterday the December live cattle/lean hog spread closed below 80.00 (premium cattle) and triggered the ‘add-on’ entry criteria. Therefore, IMC blog sold another December live cattle/lean hog spread at approximately 78.65. Initially, we will liquidate the spread on a two-day close above 85.00.
Even though the ‘add-on’ was entered with the spread at a six-month low and the ratio at a three month low, the long-term charts indicate that we’ve barely scratched the surface of the potential bear market here. The December cattle/hog ratio closed at 2.22:1 yesterday. When you look at the last forty-five years of price history, you will see that there was only the fifth time that the ratio has ever been above 2:1! To get back somewhere close to normal, the ratio has a long, long way to go. This could be one heck of a trading opportunity if we can continue to add to the position as the trend unfolds. The IMC blog will be actively monitoring the situation to see if more ‘add-on’ short sale setups will materialize.