By Matt Dalgleish | Source: MLA, Mecardo.
In late 2015 Mecardo published a series of three blogs outlining the use of technical analysis tools and how they can help predict when markets are due for a change in direction. This analysis looks at a few of these technical analysis methods, as they are all pointing to an Eastern Young Cattle Indicator (EYCI) that is set to rally.
Starting with some basic technical patterns we can see that the long-term trend for the EYCI remains in an upward trading channel, as denoted by the blue lines on Figure 1. For much of the 2000 to 2015 period the EYCI met with significant price resistance at the 420¢ level (orange line). Often when a market breaks through previous significant resistance this level becomes a key support area on the way back down. From a long term classical technical perspective, the EYCI should find significant support at the bottom of the trend channel, near the 400-420¢ level.
Further analysis of the EYCI price trend in recent years can be done by calculating the key 61.8% Fibonacci retracement level on the price rally from the cycle low of 278.50¢ in January 2014 to the cycle peak of 725.75¢ in August 2016. This suggests that the EYCI would have found intermediate support near the 450¢ region – figure 2. We have been holding ground around the 450¢ level for the last few weeks and only yesterday slipped towards 435¢.
Since the start of 2019 the EYCI has softened and now sits at the lower end of the Bollinger Band, suggesting the weakening trend is running out of momentum – Figure 3. Crucially, the recent price action of the EYCI compared to the Relative Strength Index (RSI) shows that there is some bullish divergence at the 425-435¢ level for the EYCI. Bullish divergence is when price makes new lows, but the corresponding RSI fails to make new lows and usually means the market is ripe for a rally. The same bullish divergence pattern occurred for the EYCI back in the May-June period of 2018 and subsequently the EYCI rallied 50¢.
Read more about these areas of technical analysis in the links to our three blog articles from 2015 -2016 below:
Key points
* The EYCI is nearing key long-term price support at the 400-420¢ region
* Intermediate support for the EYCI is expected at current levels, based on Fibonacci measurements of the recent price cycle
* Bullish divergence between the EYCI and the Relative Strength Index (RSI) suggests a rally in young cattle prices is imminent
What does this mean?
All the current technical patterns suggest that the EYCI is nearing crucial support levels between the 400-420¢ region. Expect to see young cattle prices across the Eastern states to find a base in the short term and begin to climb as we head toward the Autumn break.
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