Technical Analysis #C-LHOG : 12-10-2016 by IFC Markets
Work in some US meat processing plants suspended due to the hurricane
Bad weather and Matthew hurricane led to lower hogs slaughter in the Eastern coast. Will lean hog prices rise?
USDA reported that 385 thousand hogs were slaughtered on Monday October 10. This is much less than 440 thousand on previous Monday and less than 441 thousand on September 26. Work in major US meat processing plants Smithfield Foods in Carolina state and Tyson Foods in Florida is suspended due to the hurricane. Additional factor which stabilized US lean hog prices was its increased exports to Mexico: they rose to 21.3 thousand tonnes last week from 18.2 thousand tonnes a week earlier. Lean hog prices fell in Q2 2016 as its livestock rose in US by 2% to 70.85mln. This is the highest since 1988. As a result, prices plunged in June-July 2016 by one third which, in our opinion, is an excessive decline.
On the daily chart LHog: D1 has slumped more than twice since the middle of this June. This happened as hogs livestock rose in US by 2% in Q3 and as several more hog-raising farms shall appear in US till 2018. Uptrend correction is possible in case markets consider such a fall in prices excessive. In theory, correction may be triggered by suspension of work in US meat processing plants due to the hurricane.
- Parabolic indicator gives bearish signal and may serve as additional level of resistance.
- Bollinger bands have widened a lot which means expanding volatility.
- RSI has been in the oversold zone for the whole month and has formed positive divergence.
- MACD is giving bullish signals.
The bullish momentum may develop in case Lean Hog prices rise above the Parabolic signal or breaks up through the resistance of the downtrend at 45 or 47. These levels may serve the points of entry. The initial stop-loss may be placed below the last fractal low and the 7-year low at 41. Having opened the pending order we shall move the stop to the next fractal low following the Parabolic and Bollinger signals. Thus, we are changing the probable profit/loss ratio to the breakeven point. The most risk-averse traders may switch to the 4-hour chart after the trade and place there a stop-loss moving it in the direction of the trade. If the price meets the stop-loss level at 41 without reaching the order at 45 or 47, we recommend cancelling the position: the market sustains internal changes which were not taken into account.
Summary of technical analysis
|Buy stop||above 45 or 47|
|Stop loss||below 41|
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