WORLD COMMODITY PERSPECTIVE
CATTLE: November feeder cattle's attempted rally from 79.50 failed. That former key support level has been soundly broken. Even so, it's time for another rally attempt takes place. If the bull trend that has been underway since April 1996 is still intact, the upcoming advance must represent the resumption of that trend. A rally above 79.50 basis the November contract (78.52 basis the nearby contract, currently November) would signal that a new high above 84.30 (83.40 basis nearby) will be registered. Ideally, this rally will begin from within 77.50 to 74.60 support. The November contract is already testing this area.
Live cattle also declined further than I expected, and the outlook for this market is identical to what I outlined above for feeders. If the bull market that began in April 1996 is still underway, that advance may have already resumed from the 65.45 low basis the November contract registered on October 7. A rally above 68.57 would support the bullish case and clear the way for additional gains above the 73.02 peak established in July. Otherwise, while a dip under 65.45 would set the stage for a rally attempt, the odds would increase that it would prove to be corrective.
ELLIOTT WAVE ANALYSIS–Although I concluded that November feeder cattle's slide from 84.30 was corrective to 79.50, the market failed to rally to a new high. The complete retracement of the five-wave rally from that low proved it represented wave C of a flat correction. The market's decline does not rule out the possibility that the move is a correction, but if it is, the market must respond soon.
The daily chart shows a three-wave setback from 84.30 with the potential C wave nearing an end. At waves, but the bulk of the decline should already be in place. The market is currently testing prior fourth-wave support provided by the span of a triangle correction from February to April basis the November contract. The continuation chart also shows a corrective setback in May/June. The result is a support zone at 77.50 to 74.60. With a three-wave setback from 84.30 already testing that area, the larger bull trend must resume shortly if it is still intact.
December live cattle displays the same three-wave decline (from 73.02) as the feeder market. However, the second leg down in the decline (from 70.20) already displays five waves, and that could be a C wave in a completed correction from the July peak. That suggests the market must rally from 65.45 if the year-plus bull market is to continue. A rally above the proposed A wave low at 68.57 would support the conclusion that the setback is a correction and that a run to a new high is underway.
However, the situation could change abruptly. A dip under 65.45 would make it possible that the decline from 73.02 unfolded in five waves, not three. Since five-wave movements typically unfold in the direction of the larger-degree trend, the market might undergo only a rebound to correct the decline instead of a rally to a new high. The structure of the rise would be the determining factor.
COCOA: Since publication of the September WCP, cocoa managed to grind its way higher until October 8. However, that rise proved unsustainable and the December contract's subsequent decline below 1646 will almost certainly continue below 1611, even 1596. Support lies in the 1593 to 1556 area. This decline should complete a corrective process, setting the stage for the resumption of the bull trend that has been underway since February.
ELLIOTT WAVE ANALYSIS– The rally from the August low unfolded in an impulsive manner, leaving the larger degree advance intact. I cannot say the same to describe the rise from the September 1611 low (1596 basis the nearby contract). It displays several overlaps, and is most likely wave (b) of a flat correction underway from the August peak. If so, a (c) wave decline below the wave A trough at 1611 (1596 basis front month) would best complete the pattern. However, the larger bull trend would still be intact and cocoa should rally to new highs afterward.
CSCE Cocoa
(Daily Continuation)
October 1997 Elliott Wave International
October 17, 1997Jim Martens
Elliott Wave International
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