Navigating Interim Hog Peak a Matter of Scale

November 30, 2016 2:14AM CST

In Mon's Technical Blog we identified 22-Nov's 55.37 low as a very minor corrective the market needed to sustain gains above to avoid a bearish divergence in very short-term momentum.  The hourly chart below shows that its failure to do so yesterday confirmed the momentum failure and defined Mon's 57.32 high as one of developing importance and our new micro risk parameter from which non-bullish decisions like long-covers can be objectively based and managed.

We emphasize MICRO risk parameter because yesterday's sub-55.37 failure only allows us to conclude that 57.32 high as the end of the rally from 15-Nov's 52.35 low.  It would be premature to conclude a larger-degree peak/reversal threat as a result of this mo failure, even though we believe such a larger-degree peak may be forming.

Lean Hogs 60 min

Taking a step back to consider the past couple months' uptrend shown in the daily log scale chart below, the market has thus far only pulled back to an area of former resistance from the 55.00-area that, since broken last week, now serves as a new support candidate.  On this larger-degree scale 15-Nov's 52.35 corrective low still serves as our short-term risk parameter the market is required to fail below to break the uptrend from 05-Oct's 47.52 low.

Now it is interesting to point out some developing factors that warn of a more significant peak/reversal-threat condition, including:

  • the prospect that the rally from 47.52 to 57.32 is a (textbook) 5-wave Elliott sequence
    • with the suspected 5th-Wave spanning a length exactly 61.8% (i.e. 0.618 progression) of the length of prior Waves-1-thru-3 from 47.52 to 55.02
  • the nicely developing potential for a bearish divergence in momentum.

However, a failure below 15-Nov's 52.35 corrective low and short-term risk parameter remains required to CONFIRM this divergence to the point of non-bullish action.  In lieu of such sub-52.35 it would be premature to conclude that the past couple days' setback isn't another corrective buying opportunity ahead of a resumption of the 2-month uptrend.

Lean Hogs Daily

Lean Hogs Weekly

From an even longer-term perspective we believe the extent and impulsiveness of Oct-Nov's rally raises the odds that this is just the initial A- or 1st-Wave of a larger-degree correction or major reversal higher with a relapse below 05-Oct's 47.52 low and key risk parameter required to negate this call.  The fact that the Bullish Consensus ( measure of market sentiment has been dawdling around historically low levels reinforces this broader base/reversal-threat count.

Finally, the quarterly log scale close-only chart below shows the limited time this market spends outside of the 54-to-80-range where it has spent most of its time over the past 40+ years.

In sum, it's not hard to find technical evidence of a base/reversal count that could be major in scope.  And such a base/reversal PROCESS could easily include a relatively extensive correction of Oct-Nov's 47.52 - 57.32 rally if the market fails below 52.35.  But if it did, we believe this would soon thereafter pose a terrific risk/reward buying opportunity from the 51.05-area OB.  Shorter-term traders with tighter risk profiles are OK to stand aside as a result of the admittedly micro mo failure below 55.37 with a recovery above 57,32 required to negate this call and resurrect the broader bull.  Longer-term players remain advised to maintain a bullish policy with weakness below 52.35 required to move to the sidelines in order to circumvent the depths unknown of either a slightly larger-degree correction and eventual buying opportunity OR a resumption of the secular bear market.

Lean Hogs Quarterly

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