Market Morsel: See, see top

Market Morsel

In late May 2021, after a suggestion by an agricultural commentator that the Eastern Young Cattle Indicator (EYCI) looked to have peaked, I posted a short tweet as a reminder that the EYCI had been in a significant uptrend since the start of 2020 and it was perhaps a little too early to call a peak for the year.

At the time the EYCI had already tested above 900c/kg and was sitting near 890c. The EP3 team was of the opinion that a test towards 930c/kg was more likely. As of yesterday the EYCI has reached 932c/kg cwt, just 4 cents off the all time inflation adjusted high that was seen in September 1965.

Analysis of the technical picture for the EYCI, using a momentum indicator called the Relative Strength Index (RSI), shows that there are signs developing that show the EYCI is running out of upside momentum. The EYCI is currently in a situation called “bearish divergence” whereby the price is making new highs but the RSI is failing to confirm strength in the market by also making new highs. Indeed, the RSI has been making progressively lower peaks while the EYCI has been making new highs. Bearish divergence often signals that a price peak is imminent.

Additionally, the EYCI has extended beyond the upper boundary of the Bollinger band signalling that recent price moves higher are moving into extreme territory. Classic technical charting methods, using a simple trend channel approach, it is clear to see that since the start of 2020 the EYCI has been trading within an uptrend.

However, current price levels are nearing the top of the main trend channel near the 950c/kg region. A secondary upwards trend channel is also present, that has been in place since the middle of 2020, which shows slightly further upside potential to near 975c/kg cwt before hitting the top of the trend channel.

Either way, it looks to the EP3 team that we are nearing a peak in the EYCI and we expect some significant price resistance as the young cattle market approaches the 950-975c/kg region.