The information and opinions expressed below are based on my analysis of price behavior and chart activity
February Lean Hogs
Lean Hog futures dropped aggressively today, shedding 2.25 to close at 83.775. This was the worst performing market in the Grains and Livestock complexes today, narrowly outdoing Soybeans for a percent decline on the day. Very high volume over the past week or so, may be an indication or function of the rollover from the December to February contracts. December was still the volume leader today, but the Open Interest has definitively shifted to the Feb. As you can see by the chart above, the trendline support (red) was broken today, as the moarket closed at it’s lowest level since October 28th. Virtually anyone that has been a buyer (and held their position) during the month of November is now in a losing position. Only the new longs that may have been established today during a narrow 20 min period (11:20-11-40 by my 5 min chart) might be profitable at the end of the session. Based on that activity, I believe there may be more downside ahead. The trendline break seems to have halted the uptrend that has been in place since the 2nd week of August. There may be more margin liquidation ahead, as traders can be fickle and may not want to (or be able to) defend those positions. The next level of support that I see will be the 23% Fibonaci retracement level near 82.275, followed by the 50-day moving average near 80.73. The other Fibonaci levels are listed on the chart (the horizonatal lines) I’m not sure that the “bull run” is completely over, only time will tell us that, but it does seem to me that the market is very overdue for a sell off. I would suggest that traders that are looking to establish new longs sit on their hands (do nothing) and wait for the market to garner some support at lower levels. I also don’t currently think that we’re in for an extended sell off like the market saw in June and July. Keep in mind that we’re just 2 days removed from new contract highs and the Lean Hogs have certainly outperformed most other futures markets since the August 13th low. A decent size pullback may turn out to be a good buying opportunity, if traders can be patient.
Jefferson Fosse Walsh Trading
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