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Is the Hog Market Over

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Is the Hog Market Over?

April 17, 2019

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It took time but the Hog market finally turned its attention to the African Swine Flu in China. It is not like it was a great mystery. Some pretty astute analysts were suggesting a big rally was in order but yet for weeks if not months the ASF situation was largely ignored by the trading public.

Looking back June Hogs experienced a very steady decline from $85.17 on November 23, 2018 to $72.20 on February 20. Then from February 20 to April 4 June Hogs rallied almost $28.00. BOOM! The light switch went on as word that China could lose more hogs to ASF than the U.S. produces. From April 5 to present day the Hog market in general has hit resistance causing one to ask if the upside move in the Hog market is over.

What do we know?

  • We know according to the work done by Trends and Reversals that the Hog market remains in a long term uptrend
  • We know that June Hogs will need a weekly close this Thursday (because Friday in Good Friday and markets are closed) of $74.37 to reverse to bearish. Not likely
  • Projecting out front we know in coming weeks a bearish reversal will not get any easier
  • Therefore we can surmise that the reason for the recent consolidation lies elsewhere

Using the old fashioned RSI indicator back on March 22 after the initial thrust higher the RSI on June Hogs reached the level of 85 obviously overbought by most definitions. I however prefer to use our in house model which painted an even more acute picture. On Friday, March 29 this model showed the positive indicator for hogs had reached SEVEN standard deviations above the 187 week average, this reached a point of negative equivalency. This means that the market had moved so far so fast that while the positive indicator was traveling higher at warp speed it was pushing the negative indicator lower. This happens in only the most bullish or bearish markets. This also tells us as the indicators separate to extremely wide points there is a very high probability for a corrective move.

While the market has experienced a slight corrective move from April 5 to yesterday April 16, the positive indicator is still over two standard deviations above the 190 week average. It is my opinion that while we can still go higher any short term upside move is limited. It will take a greater break in the market, perhaps another $7.00 to $10.00 break to put the market back in balance and prepare itself for the next thrust higher.

So in my opinion the hog market is not over, but will need some time to rebalance.

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About the author

Lee A. Gaus is a forty year veteran of the commodity futures industry.  After graduation from Illinois State University Lee began his professional career with Cargill of Minneapolis and then moved to Archer Daniels Midland of Decatur, Illinois.  After stints in the areas of animal nutrition, soybean processing and grain merchandizing Lee began specializing in commodity futures trading.  After being transferred to Chicago Gaus rose to the position of Senior Vice-President.  In 1992 Gaus was a founding member of EFG Group, and later International Futures Group.  Gaus has always had a deep interest in what appears to be the random movement of numbers.   Today Gaus combines old formulas with formulas of his own design in an attempt to discover fair valuations.  

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