(LH) Hog Failure Defines $0.9225 High, Risk Ahead of Expected Relapse; Cattle Still Penned in Range

By: RJO MRTNovember 29, 2011 8:09am CST 7607


Technicals, November 29, 2011; 7:35am

Within an hour of yesterday's Technical Blog that discussed a developing bearish divergence threat, hourly chart below shows that the market failed below last Wed's 90.80 corrective low needed to confirm the divergence that now defines Fri's 92.25 high as the end of Nov's recovery from 86.80. As a result, the market has defined 92.25 as the new short-term risk parameter it needs to recoup to confirm any subsequent relapse as a correction within a broader bullish count that would then sight 18-Oct's key 93.85 high. In lieu of such 92.25+ strength, a larger-degree correction or reversal of Nov's 86.80 - 92.25 high is expected, the depth of which is indeterminable. So unless one is of a long-term risk profile willing to risk a bullish policy to 09-Nov's 86.80 low- the only other pertinent technical level and risk parameter south of 90.80- traders are advised to move to a neutral-to-cautiously-bearish policy from current 90.80-area prices and to approach any interim pops as corrective selling opportunities.


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The uninterrupted nature of Nov's 76.4% retrace of Oct/Nov's 93.85 - 86.80 plunge shown in the daily chart above left no levels of any technical pertinence shy of 86.80 that we can now consider as a support candidate. Remember, merely derived technical levels like Fib retraces, Bollinger bands and moving averages- in and of themselves- are NOT considered reliable support levels. At this early juncture in a peaking/reversal threat then, there is virtually no way to determine the scope of a counter-trend break that has been exposed by the momentum failure. And with the MRT Bullish Sentiment Index of hot Managed Money positions reportable to the CFTC still at a whopping 87% reading a little more than a month after a 10-yr high that we believe contributed to Oct/Nov's plunge, there's no reason to believe that a repeat plunge doesn't lie ahead. What we DO know is where the market should not trade per any larger-degree correction or reversal higher- above Fri's 92.25 high and risk parameter.

In sum, traders are advised to move to a neutral-to-cautiously-bearish policy as a result of yesterday's momentum failure that defines Fri's 92.25 high as the end to Nov's recovery from 86.80 and the start of a larger-degree correction or reversal lower. In lieu of such 92.25+ strength, traders are also advised to not underestimate the extent to which this market might be vulnerable, given the sentiment fact that the huddled masses remain grossly bullish this market that, on a weekly log active-continuation chart basis has thus far only recouped 50% of Mar/Sep's 104.15 - 82.40 shown in the weekly log scale chart below.


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Looking at the hourly chart of Feb cattle above and left unaltered by a relapse below 21-Nov's 120.20 low, Nov's sell-off attempt is clearly only a 3-wave and thus corrective affair that warns of an eventual move higher. But with the daily chart below showing this market still stuck in the middle of a 5-month range in which aimless whipsaw risk makes any sort of wave counting a totally futile exercise, a neutral/sideline policy remains advised for shorter-term traders with tighter risk profiles in this coin-flip environment.

From a longer-term perspective and on the heels of May-Jul's sharp rally, these past months' merely lateral price action is arguably corrective/consolidative ahead of an eventual resumption of the bull. And while near-term strength above 17-Nov's 124.75 high will certainly confirm such a count, a failure below 21-Nov's 120.20 low will threaten it sufficiently to warrant longer-term traders moving to the neutral/hedged position in order to circumvent the depths unknown of a larger-degree correction or reversal lower.


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For while the weekly log scale chart below clearly shows the scope of the secular uptrend that should not surprise by its continuance, this chart also shows waning upside momentum amidst a frothy bullish sentiment condition that are factors typical of most major peak/reversal environments.

In sum, a neutral/sideline policy is advised from current range-center levels that make for a poor risk/reward condition from which to initiate directional exposure. 124.75 and 120.20 define the key triggers to the next directional move.


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