Resumed Hog Bear Defines New Tight But Important Risk Level

September 20, 2016 3:40AM CDT

Yesterday's resumption of Sep'16's latest swoon within the secular bear trend leaves yesterday's 50.45 high in its wakes as the latest smaller-degree corrective high this market needs to sustain losses below to maintain a more immediate bearish count.  It's failure to do so would not only confirm a bullish divergence in momentum that would break this month's downtrend, it would likely define it as a complete 5-wave Elliott sequence as labeled in the hourly chart below and expose a larger-degree correction or reversal higher.  Per such 5045 becomes our new short-term parameter from which the risk of a still-advised bearish policy can be objectively rebased and managed by shorter-term traders with tighter risk profiles.

Lean Hogs 60 min

Lean Hogs Daily

The daily log scale chart above shows yesterday's resumption in the downtrend and an "outside day" (higher high, lower low and lower close than Fri's range and close) to boot.  The trend is indeed down on all scales and should hardly surprise by its continuance or acceleration.  And while we have identified a tight and objective risk parameter at 50.45 , to be sure, larger-degree proof of strength above former 53.55-to-54.20-range support-turned-resistance is MINIMALLY required to threaten the secular bear trend.

The weekly log close-only chart below shows understandably historically bearish levels of market sentiment in the Bullish Consensus ( typical of major BASE/reversal conditions.  But traders are once again reminded that sentiment is not an applicable technical tool in the absence of a confirmed bullish divergence in momentum of a scale sufficient to threaten the major downtrend.

Lean Hogs Weekly

For those wondering about a "LOW in here somewhere", the quarterly log scale close-only chart below may provide some hope.  This chart shows that over the past 43 years the market has spent about 80% of its time between the 79.95-area and the 54.40-area.  Interestingly, keeping a sort of pendulum motion in mind, 2011-to-2014's exuberant 40% spike above the upper boundary of the 79.95-to-54.40-range median was identical in length to 1998's 40% meltdown below the lower end of this 79.95-to-54.40-range median. We're not really sure if this means anything that would be helpful in trading over the next few months.  But an argument can be made that prices below a 54-handle- like the current Dec contract is experiencing- are on limited time where almost ANY-sized bullish divergence in momentum- like one above an admittedly short-term risk parameter like 50.45 - must be approached as a serious reversal threat.

These issues considered, a bearish policy and exposure remain advised with strength above 50.45 sufficient to warrant a move to the sidelines by shorter-term traders with tighter risk profiles and for longer-term players to pare bearish exposure to more conservative levels.  Ultimately, a recovery above AT LEAST 54.20 is required to truly threaten the secular bear trend however.

Lean Hogs Quarterly

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