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Livestock ETF Sell-Off May Be Overdone


The livestock commodities have been under heavy selling pressure over the past few months, pushing related exchange traded notes into potentially oversold territory. As investors shift out of pricier areas of the market, like equities, these cheaper areas could pick up momentum.

The iPath Dow Jones-UBS Livestock Subindex Total Return ETN (COW) has declined 11.2% year-to-date and decreased 15.2% over the past three months.

Once U.S. equities start to pullback and volatility rises, money could shift out of the previously outperforming equities market and into more underperforming areas, like the commodities space, writes Chris Vermeulen, CEO and founder of AlgoTrades Systems, for TheStreet.

Vermeulen argues that livestock commodities could be one area ready for a bear market rally. He points to bullish indicators, including a bottoming volatility pattern, testing a short-term trendline, rising relative strength and the oversold price.

For instance, following the continuous drop off over the past few months, COW’s relative strength index revealed that the ETN was recently trading in oversold territory around the start of February, but it has since gained momentum.

The ETN is also currently testing its 20-day simple moving average. COW is beginning to consolidate and trade within range after the multi-month fall.

COW includes a 63.4% tilt toward live cattle and 36.7% in lean hogs.

Lean hogs have been driving the large pullback in livestock futures after a porcine epidemic diarrhea virus decimated young pigs and pushed prices to record highs last summer. However, the virus subsided and more hogs are making it to market, Fortune reported. Moreover, lower international demand has also curbed any quick rebound in prices.

Live cattle and lean hog futures also fell Tuesday, following the USDA’s higher headcount for hogs slaughtered, Benzinga reports.

iPath Dow Jones-UBS Livestock Subindex Total Return ETN


For more information on the commodities space, visit our commodity ETFs category.

Max Chen contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.