Today I'm going to talk about something unusual, not a conventional stock idea. It is about livestock, more specifically cattle prices. We are seeing something extreme developing that often leads to a big trend change. It is about traders sentiment, a very good contrarian indicator.
As of now, future traders are becoming extremely bullish for cattle, betting for higher prices moving forward, as indicated in the Commitment of Traders (COT) report. We have rarely seen such an extreme as in the past decade, only two other times the euphoric sentiment have reached to similar high levels. The most recent one occurred in 2014 and the cattle prices crashed soon after for a 40% plunge till late 2016. By then the sentiment became extremely depressed. Then the trend turned around and cattle prices jumped almost 30% from late 2016's low till now. History starts to repeat itself as now the traders' sentiment has again become extremely euphoric, more so than that in 2014. Are we going to see another 40% decline for cattle prices? I don't know but I'm pretty sure it will soon start to turn down and likely with another huge crash to follow. If anyone interested in betting for this trend, the ETF for hogs and cattle called COW may be a good short target.
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