Today’s poke above 02-Jan’s 63.42 initial counter-trend high may not seem like much and may only be the completing (c-Wave) component to a correction from 27-Dec’s 60.20 low consistent with a still-developing downtrend from 20-Nov’s 69.50 high to eventual new lows below 60.20.  Indeed, the market is only now engaging former 63.85-area support from late-Nov that, since broken on 17-Dec, must be considered as a new key resistance candidate.

However, today’s resumed rally above 63.42 confirms a bullish divergence in momentum that defines Mon’s 61.25 low as the latest smaller-degree corrective low this market is now required to fail below to render the recovery from 60.20 a 3-wave and thus corrective structure that would then re-expose the past month-and-a-half’s bear.  Until and unless such sub-61.25 weakness is proven, at least the intermediate-term trend is up and could surprise by its scope.  Per such this 61.25 level is considered our new short-term risk parameter from which non-bearish decisions like short-covers and cautious bullish punts can be objectively based and managed.

Lean Hogs Feb '19 60 Minute Chart

Lean Hogs Feb '19 Daily Chart

The daily chart above shows this bullish divergence in momentum that defines 27-Dec’s 60.20 low as one of developing importance and possibly the end of the broader setback from 20-Nov’s 69.50 high.  Combined with the market’s rejection (thus far at least) of the lower recesses of the past quarter’s range and exact (60.20) 1.000 progression of Oct’s 68.07 – 58.77 decline from 20-Nov’s 69.50 high and still-depressed Bullish Consensus sentiment levels, traders are advised not to underestimate the market’s upside potential.

For obvious technical and fundamental reasons this has market has been somewhat of an odd bird.  After breaking to new high for this year’s major bull in mid-Nov, its gross failure to sustain those gains amidst historically frothy levels in our RJO Bullish Sentiment Index warned of a broader correction or reversal lower.  Today’s continuation of the past couple weeks’ recovery threatens such a bearish count, but the market has rallied enough and proven trendy, impulsive upside behavior enough to negate a broader bearish count and confirm a longer-term bullish one.

What the market HAS done however is confirmed at least the intermediate-term trend as up and, most importantly, defined specific corrective lows and risk parameters at 61.25 and 60.20 that it is now required to fail below to threaten and negate a bullish count and resurrect a broader bearish one.  Until such weakness is shown, further and possibly accelerated gains should not surprise, including a run to new highs above 69.50.

Lean Hogs Feb '19 Weekly Chart



Moving out on the forward curve in an attempt to possibly address some China issues, a few things in the Apr contract stand out:

  • Mon’s break below 28-Dec’s 66.35 low reaffirms the longer-term downtrend and
  • identifies 02-Jan’s 69.02 high as the latest corrective high it must now sustain losses below to maintain a bearish count.
  • a nicely developing POTENTIAL for a bullish divergence in momentum (CONFIRMED above 69.02)
  • the market’s acknowledgment of the mid-65-handle area as key support since late-Oct and
    • 65.61 being the 50% retrace of Jul-Nov’s 57.80 – 73.42 rally.

IF the market confirms a bullish divergence in mo above 69.20, ending Nov-Jan’s slide, the market’s upside potential beyond 69.02 is indeterminable as there would be no way to know at that point if that recovery was “just” a correction of Nov-Jan’s slide within a broader peak/reversal process OR a resumption of 2018’s major bull.  But given China issues, traders should not want to underestimate this market’s upside potential above 69.02 until and unless stemmed by a countering bearish divergence in momentum.

In sum, toggle directional biases and exposure around 69.02

Lean Hogs Apr '19 Daily Chart



While the Jul contract has not eroded nearly to the (50% retracement) extent that the Apr contract has, the developing POTENTIAL for a bullish divergence in momentum is the same with 03-Jan’s 83.77 corrective high THE risk parameter this market needs to recoup to CONFIRM the divergence to the point of non-bearish action like short-covers and cautious bullish punts.  And given the magnitude of Jul-Nov’s uptrend, a resumption of that uptrend to new highs above 85.97 should not come as a surprise IF/when the market recoups 83.77.  Until such 83.77+ strength is shown, at least the intermediate-term trend and possibly the new long-term tend is down  and should not surprise by its continuance or acceleration.

In sum, toggle directional biases and exposure around 83.77.

Lean Hogs Jul '19 Daily Chart



Lean Hogs Monthly Chart


The pertinence of the active-continuation chart (monthly above and quarterly close below) is often times questioned.  During such times, traders are free and encouraged to analyze each contract on its own merits like we have done above.  The Jul contract is- not unexpectedly for this time of year- trading at a sharp premium (about 19-cents) to the prompt Feb contract that not only remains deep within the middle-half bowels of the past 4-YEAR range, but well within the median range that has dominated it for the past 40 YEARS as shown below.  Nothing new here.

With respect to an outlier effect like the prospective China issue, one would expect “higher” prices, and potentially extraordinarily higher prices.  Herein lies the importance of those corrective highs, risk parameters and toggle points specified at 83.77 in the Jul contract and 69.02 in the Apr contract.  IF there is still something bigger to the bull side that lies ahead, it will be these contracts’ recoveries above these levels specifically that will warn of such and provide traders an objective risk/reward condition from which to position for such.  Until and unless such strength is proven, further losses should not surprise.

Lean Hogs Quarterly Chart

RJO Market Insights

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