Feeder cattle (GF) rallied more than 30% from 170 in January to the 224.675 high in July (September contract). While the trend is still up, and therefore taking a short trade right now is counter-trend, recent attempts for the price to move higher in August have been thwarted.
A drop below 211.65 takes out the August low and sets the price on a course to take out the 209.20 July low as well. If that occurs the uptrend is in jeopardy and ushers in the possibility for more downside.
Figure 1. Feeder Cattle Daily Chart (GF - September Contract)
Since this is a counter-trend trade, look to keep risk low (compared to reward) but hold out for big pay-day if the price is topping out and proceeds lower.
A stop loss can go in the 220 area (above the 217.525 August 19 high), or above the $224.675 high to give the trade a bit more room. This keeps risk between about 5 and 12 points. If the price proceeds below 209.20 hold out for a target at of least 194. If the price continues to move lower, 170 is the next target, which would retrace nearly all of the gains seen this year. Potential reward is about 19 points, with potential for much more if this is a top.
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