11/04/11: The US dollar index rebounded after filling in a gap that remained on the downside. This rebound came on the heels of a massive intervention by the BOJ. Last week we commented on the relentless charge higher by the Yen. Monday saw the Yen break through key support on the intervention. That long position should be stopped out but once the dust settles, the Yen looks to be headed back up to the highs and my expectations, even further. Elsewhere, the cattle market has registered a massive breakout in both Live Cattle and Feeder and is the focus of this weeks CTS blog. One ought to expect much higher prices there going forward.
This week I thought we would take a look at one of the few markets that is moving higher in earnest, regardless of the US dollar's trend. Meat prices have lagged the broader market's inflationary action over the past few yeas. Over the past few years we have seen Corn go from $3 to $6, gold from $750 to $1500 and crude from $50 to $150. Meat prices however haven't moved in such a manor. I believe that it is the meat's turn now.
From a cost perspective, grain prices are current very weak and any further global economic uncertainty shall reduce demand for already dramatically inflated prices. This is music to a cattle farmer's ears. As the price of grain falls, the carrying cost of herds fall too. Couple this fundamental situation with an already tight supply of cattle and we have the makings of a bull market. Since farmers are not being pressed to sell their herds and they see rising prices, they have incentive to keep their herds in the hopes of seeing higher prices in the not too distant future. In essence, the spiral feeds on itself. Higher prices means less supply to market means higher prices etc.
Technically speaking, this chart is one of the most beautiful one's a technician can see. Simply put, prices are moving from the lower left to the upper right in a very consistent, steady fashion. Market's often 'go parabolic' near the end of moves, we see no parabolic action here which suggests we are a long way away from the end of this run. Specifically, traders were given a huge buy signal this past week when prices moved through Spring '11 highs (122.60). The formation itself suggests we will see at least another $.10 higher in the short term (where each point = $4 so $.10 = 1000 points = $4000 per contract).
Notice that this market actually gave you a chance to get in before the massive weekly breakout. CRI got a nice double bottom buy signal 13 weeks ago at 115.50. This position is up almost $4000 itself and yet I think we are just getting going here rather than nearing an end. Regardless of where you are long, enjoy the ride because it looks like this market is just now starting to heat up in earnest.
That's all for this issue of the CTS Spotlight,
Brian Beamish FCSIthe_rational_investor@yahoo.com
http://www.therationalinvestor.ca
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