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After grinding sideways into what looks to be a monster sized flag, hogs have finally broken higher today. The next target for July Hogs will be $83.  The weekly continuous hog chart has made quite a move. Continuous charts are calculated from the nearby month contract, so price there moves differently than a deferred daily contract such as July hogs does. It could be that a $20 move on the nearby will calculate out differently for the July contract if the spread between the two is narrowing. Hogs on the continuous chart have already rallied $10 from when I first wrote about hogs back on October 1.  I think there could still be some substantial upside left for anybody still interested in trading hogs.
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Alright.... you had a week to think about the speculative trade I suggested. The research I followed gave October 17 through November 30 as an entry period. It looks to me that hogs have already bottomed and are poised to make a move to the upside now. Hogs rallied strong the day after I posted this idea last Sunday. Since then, hogs have consolidated into this clean bull flag.  The risk here should be easy to manage. Go long one July Lean Hogs contract at $80.50. Place a stop GTC at $79.85 which is just below the flag. Your risk will be .0065 x 40,000 = $260. Hogs got a bump already on Monday, so I am going to guess that hogs could rally another .18 from here. If that happens, you would gain $7,200 on one contract. That is tremendous risk/reward!
Research shows that buying July Hogs between October 17 and November 30 has averaged a $1193 profit 14 of the last 15 years. Looking at the seasonal chart from Sentiment Trader from October 17 (day 290) until the end of November, gains are usually realized through May.  If one were to look at the cycles on lean hogs, you would see that the average length of an intermediate cycle is 25 weeks. The first week of November will mark week 25. You will also notice that the yearly cycle also tends to bottom in October.  The optimism index for hogs are nearing excessively pessimistic levels. This is what you want to see when contemplating a long futures position......a market which is running out of sellers.  The weekly stochastics and RSI oscillators are at extreme oversold levels. I expect they will turn up soon.  The contract size of one lean hog futures contract is 40,000 lbs. I think a mild estimate on how far prices can move would be .20 per pound. That would be an $8,000 gain!
I am not yet ready to pull the trigger yet but could by the end of the week. I would love to see a blood bath kind of finish to this yearly cycle to flush out any remaining longs. If this is the kind of trade which might interest you, I would recommend getting ready now. The margin for one contract is $1,200. |
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February 2021
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