(LH) Hog Pop- Correction or Reversal?

By: RJO MRTJanuary 18, 2012 7:50am CST 7685


Technicals, January 18, 2012; 6:55am

In Thur afternoon's Technical Blog we discussed the prospect for at least an interim recovery stemming from the combination of the market's proximity to the extreme lower recesses of the past month's range amidst a developing bullish divergence threat in short-term momentum. This divergence was confirmed with Fri morning's break above 10-Jan's 84.35 corrective high and warned of at least further short-term gains to the upper recesses of the past month's range that warranted defensive measures from shorter-term traders with tighter risk profiles. And with overnight's gains above 28-Dec's 86.50 high and longer-term risk parameter detailed in the hourly chart below, a larger-degree correction or reversal higher has now been exposed, warranting defensive measures by longer-term traders as well.


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The daily chart below shows overnight's gains above 28-Dec's 86.50 high and 38.2% retrace of Dec's preceding 92.35 - 82.62 decline. And while the recovery from 16-Dec's 82.62 low is thus far only a 3-wave affair and remains within the confines of the past quarter's broader down-channel that warns that the past week's pop from 82.80 may just be the completing c-Wave to a broader bear-market correction, the fact of the matter is that at least the intermediate-term trend is up. And until or unless this rally falters with a confirmed bearish divergence in even short-term momentum below a minor corrective low like yesterday's 85.42 low detailed in the hourly chart above, there is no way to know that the recovery from 82.80 isn't the 3rd-Wave of a broader reversal higher.


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The weekly log active-continuation chart below shows the development of the mid-82-handle as a considerable support condition, holding the market over the past month as well as it did last Sep. Surely, if this level is broken, the market's downside potential thereafter will be indeterminable and would warrant a bearish/fully-hedged policy. While this area holds however and given 2011's sell-off attempt that is every bit as 3-wave/corrective-looking at 2010's 87.55 - 65.15 setback, traders are advised not to underestimate the market's upside potential following breaks above larger-degree risk parameters like 28-Dec's 86.50 high.

In sum and as a direct result of overnight's break above 28-Dec's 86.50 high, traders are advised to move to a neutral-to-cautiously-bullish policy with the full acknowledgement that the past week's recovery could be the completing c-Wave to a broader bear-market correction. If the rally from last week's 82.80 low is the 3rd-Wave of a broader reversal higher, reinforcing evidence of such should become increasingly clear in the form of sustained, trendy, even obvious strength straight away. "Dying-on-the-vine" upside behavior and a subsequent short-term mo failure below yesterday's 85.42 low would be the first indication of the bear-market-correction count ahead of a resumption of the past quarter's bear trend to new and potentially significant lows below 82.62.


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