Lean Hogs Trend Lower
Eric De Groot | Feb 05, 2016 07:09AM ET
Lean Hogs, a term used for butchered pigs regardless of paunch, has been trending lower on ample supplies and sluggish export demand since July 2014. These trends that the 'fundamentalist' define as a glut support the sellers during seasonal weakness.
Investors, largely driven by emotions rather than discipline, tend to focus on volatility rather than the message of the market. This tendency prevents them from recognizing better opportunities in quieter markets.
Insights constructs and interprets the message of the market, the flow of sentiment, price, leverage, and time in order to define trends within the cycle of accumulation and distribution for subscribers.
Summary
The BEAR (Price) and BEAR (Leverage) trends under Q1 accumulation during seasonal strength position lean hogs as an aging bear opportunity. Q1 accumulation suggests enough stored energy to change the long-term impulse at least temporarily. The transition to BULL (Price) and BULL (Leverage) reclassifies hogs as solid bull opportunity.
Price
Interactive Charts: Lean Hogs CC, $BCOMLH
A negative long-term trend oscillator (LTCO) defines a down impulse from 95.10 to 65.13 since the fourth week of August 2014 (chart 1). The bears control the trend until reversed by a bullish crossover. Compression (white circles) within the CEC cycle generally anticipates this change.
A close above 83.83 jumps the creek and transitions the trend from cause to mark up. A close below 44.53 breaks the ice and transitions the trend to mark down.
Chart 1
Leverage
A positive long-term leverage oscillator (LTLO) defines a bear phase since the second week of November (chart 2). This focuses the down impulse (see price).
A diffusion index (DI) of 52% defines Q1 accumulation (chart 3). A capitulation index (CAP) of 55% supports this message (chart 4); these readings follow a string of bullish setups or clusters from January 2015. DI and CAP's trends, broader flows of leverage and sentiment from extreme accumulation (green dotted line) to distribution and extreme fear (green dotted line) to complacency supporting the bulls (red arrows), should not only continue to extreme concentrations but also restrain downside expectations until reversed (see price). Continuation of the decline under these trends, a sign of weakness (SOW), would be bearish for hogs longer-term.
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Chart 2
Chart 3
Chart 4
Time/Cycle
The 5-year seasonal cycle defines weakness until the first week of February (chart 5). This seasonal path of least resistance restrains upside expectations over the short term (see price). Seasonal weakness is followed strength until the summer of 2016.
Chart 5
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