Steak lovers rejoice

I remember walking into my local grocery store late last year and noticing how the price of a good steak was becoming more expensive than lobster. Beef prices rose on average 30% last year.  While it did not touch all-time highs, you had to go back to 2008 before you saw prices that were higher. But like all commodities which are at extremes (high or low), “the market” has a natural built in governor which eventually moderates prices back towards the long term average.  Beef prices are another example of when you hear me speak of the power of “reversion to the mean”.

The beauty of technical analysis is that is can be used across any market where historical values are available for analysis and beef fits that bill. In the weekly cattle price chart below we see price hit a peak back in November of last year and created a divergent high (price moved higher while price momentum in the upper pane moved lower) which was the tell-tale warning a decline was imminent. As expected, prices soon fell and eventually bottomed nicely at the prior $74 support line. From there price rebounded higher to create a lower high and form the right shoulder of a potential inverse head and shoulders pattern. In TA there are no absolutes but this pattern is warning of a short term top. If price falls below the $74 neckline the playout of the pattern projects to a $63 target, back to the May 2013 lows. 

This is definitely something to keep an eye on because I don’t know about you but I am tired of eating chicken!