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The Next Move in Lean Hogs Demands Instant Gratification
A perfect bullish storm rolled into hog futures in December. So why did prices turn down?

By Nico Isaac
Tue, 15 Jan 2013 17:45:00 ET
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People who prefer pork on their dinner plate -- NOT in their trading portfolio -- may be surprised by this piece of news:  

Since hovering near an all-time record high in mid-December 2012, lean hog futures have officially gone from hog wild to hog mild. Prices have turned down in a steady sell-off to 3-month lows.
 
Here's a reasonable question: Why?
 
The usual suspects say the answer is classic supply & demand economics. Here, a recent Wall Street Journal article explains:
 
"US lean hog futures at the Chicago Mercantile Exchange slid sharply... on increasing concerns about near-term demand. Near-term hog supplies are larger than some traders and analysts had expected, raising concerns demand may not be sufficient to absorb the additional pork without pressuring prices."
 
There's just one problem with this logic: Unless a record number of sows -- how can I put this delicately -- were "busy" enough over the past three weeks to give birth to a record litter of piglets in record time, then hog supplies are nowhere near levels that could overwhelm demand.
 
Point of fact, as late as December 27, one news source revealed a perfect bullish storm in the fundamental backdrop of lean hogs. Here, one article from the time sets the record straight:
 
·         "We are bullish hog prices... with feed price induced declines in production and the lowest ending stocks in over 15 years." (Agrimoney.com)
 
·         And this one for good measure: "Lean hog futures have proven one of the most reliable for gains amongst agricultural commodities. Tightening supplies on pork exports that are believed to be holding strong will limit any downside move." (Bloomberg)
 
Since then, the downside trend in hog prices has been anything but limited.
 
The lesson here is simple: More often than not, fundamental analysis of financial markets looks at price action FIRST -- and then tailors the news to fit the move. Lean hog prices rise, so the supply/demand picture is "bullish." When lean hog prices fall, the same picture is "bearish."
 
Elliott wave analysis does the opposite. Our analysts study the objective internal measures of Elliott wave structure -- in addition to various technical indicators -- to anticipate price action before it occurs.
 
Let's go back to lean hogs. In the December 2012 Monthly Futures Junctures, our chief commodity analyst and Futures Junctures Service Editor Jeffrey Kennedy included lean hogs in the opening "Featured Futures" segment. There, Jeffrey presented in-depth written and video analysis of hogs that set the stage for an immediate reversal. Here we have an excerpt from Jeffrey's video:
 
"We have an exciting 1,2,1,2 wave structure in this market. This is a very aggressive labeling that demands instant gratification. We need to see more decisive selling in the next say 3 to 4 weeks to really confirm this outlook. We will keep a very close eye on hogs."
 
Now that hogs have fulfilled the first part of Jeffrey's Elliott wave script, the question is: are prices nearing an important bottom?
 
 

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