We were early selling December lean hog futures in September. Our expectations were based on solid technical resistance that had built up near $0.645 per pound along with an early onset of seasonal weakness. Fortunately, our protective stop kept the loss manageable. December hog futures continued to climb through September. The mid-September head fake didn’t fall far enough to to actually trigger a sell signal but it did fall far enough to setup a bearish divergence pattern triggered by yesterday’s price action. We’ll briefly review the premise for the current hog trade while illustrating the power of divergence analysis supplemented by the Commitment of Traders report.
The coffee market has always been one of the speculative stars of the futures’ markets. This is due to the large contract size of 37,500 pounds and this market’s typical volatility. Even at the currently depressed prices and low volatility, the average range is still more than $1,300 per contract, per day. This market is famous for its fast, giant swings and the associated sums of money made or lost. Fortunately, the recent decline in coffee’s volatility comes at a time when commercial long hedgers, the coffee roasters, are laying in stores for future production. Their buying serves as a proxy for fundamental data and valuations. While we can’t afford to hold positions the way hedgers do, we can put the leverage of their hedges to work for our own speculative purposes.
Is this the first failure of the coming weakness? We’ve been planning ahead in, “Equity Rally Waves a Caution Flag.”