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Hog market technically challenged

Agriculture.com Staff 01/06/2006 @ 1:36pm

After an extended long term uptrend, hog prices are on the verge of technically looking very weak. In July, the hog market bottomed with all futures contracts since extending an uptrend and recently topping. For this Perspective, we will use the April contract and lay out a defensive strategy on futures.

April futures bottomed on July 15 at $55.60 and uptrended for six months, peaking on December 2 at $70.40. On December 2, prices made a very prominent bearish key reversal. A bearish key reversal is when the market, during the course of the day, takes out the previous day's high and low, and closes lower. At the top of an extended uptrend, this can be a very prominent signal that lower prices may lie ahead. The key, however, is what happens after the bearish key reversal. If prices continue upward and negate this signal, it has little meaning.

What happened with April is that prices slid some and then consolidated in a pattern for nearly two weeks. Then prices gapped lower on December 14, leaving a chart gap between $68.40 and $68.05. Prices consolidated for approximately ten days before coming back up and filling the gap on December 30 with a high of $68.50. Currently, prices are struggling to hold above the 50-day moving average, which has held in the April contract since late July.

If prices break to the downside, the next near term support is the 100-day moving average, which as of this writing exists at $65.20. If prices slip just through the 100-day moving average, then they would be at a consolidation point that existed through most of October. This appears to be better support and currently is more in line with cash values, which, again as of this writing, are trading between $54 and $58 lean hog price.

In summary, a bearish key reversal, a gap that was left then filled, and a move below critical moving averages, as well as a premium in futures price to cash suggests that the hog market could be in trouble. Fundamentally, the market continues to find solid demand and, even though weekly slaughters have been consistently at or above two million, supplies have been readily used. Nonetheless, with cheap grain and relatively high hog prices for the last eighteen months, one has to expect that there is expansion underway. Although it may be gradual in the U.S., we expect quicker expansion elsewhere in the world and a more troubling picture long term for hogs. Bottom line, use good strategy. Price charts can be an aid for you.

If you have questions or comments, please contact Top Farmer at 1-800-TOP-FARM, ext. 129.

After an extended long term uptrend, hog prices are on the verge of technically looking very weak. In July, the hog market bottomed with all futures contracts since extending an uptrend and recently topping. For this Perspective, we will use the April contract and lay out a defensive strategy on futures.

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