Technical Tuesday: Lean Hogs

Tech Tuesday July 2 Hogs

Lean hog futures may finally be ready for a correction higher after a severe, $20 decline that started in late April.? The current wave count suggest we have just finished wave (3) and are ready to correct higher-sideways in wave (4).? Providing confidence is that guidelines that wave (3) is 2.618 of wave (1) and we have seen our first instance of divergence with momentum.?

Expect wave (4) to retrace .382 of wave (3); perhaps only .236 because the downtrend is so strong and we cannot rule out the most common retracement in any market of .500.? Since wave (2) was sharp, we would expect wave (4) to be sideways, either a flat pattern or a triangle.?

For corroborating evidence, we can look at secondary and tertiary indicators.? RSI provides confidence because it took out the bull market support level of 40, went to a new extreme and is returning back to 40 level.? On the proposed rally, look for RSI to stay below 60 (bear market resistance) to know you are still in an overall downtrend.?

MACD is making new highs with the early beginnings of this bounce after divergence.? Since expectations for wave (4) is it to be choppy and sideways, expect MACD to also be schizophrenic.?

The slopes of all the moving averages have turned lower.? ADX has turned lower above the 40 level, often illustrating that the meatiest (greatest price move in shortest amount of time) is over.? Look for the long-term moving averages to act as resistance on the counter-trend rally.?

Bottom Line:? Lean hog futures trend is lower.? We are looking for a counter—trend move that will retrace 38% of wave (3) to add short positions.? Once complete, the market should make new lows in wave (5) below 84￠/lb.