Hog inventory in the US exceeded the 50-year maximum
The US Department of Agriculture (USDA) noted in its quarterly report that the hog inventory in the country has reached the maximum level in more than 50 years. Will the hog prices fall?
In the second quarter of 2017, the hog inventory has increased by 3% compared to the last year’s indicator for the same quarter and reached the maximum level since 1964: 71.65 million. This is slightly more than the market participants expected. The number of fattening pigs in the United States rose by 2% and amounted to 6.069 heads. The market supply of hogs for sale on June 1 of the current year was 65.581 million heads against 63.302 for the same date in 2016. At the same time, its value reached the annual maximum. Theoretically, the increase in the supply of hog may provoke a price correction.
On the daily timeframe, LHog: D1 continues to be in a rising price channel, but its increase has slowed down. A downward correction towards the lower boundary of the channel is possible in case supply of meat exceeds demand.
- The Parabolic indicator gives a bearish signal.
- The Bollinger bands have narrowed, which indicates low volatility. They are titled downward.
- The RSI indicator is below 50. It has formed a negative divergence.
- The MACD indicator gives a bearish signal.
The bearish momentum may develop in case LHog falls below the last fractal low at 81. This level may serve as an entry point. The initial stop-loss may be placed above the last fractal high, the Parabolic signal, the upper Bollinger band and the annual maximum at 88. After opening the pending order, we shall move the stop to the next fractal high following the Bollinger and Parabolic signals. Thus, we are changing the potential profit/loss to the breakeven point.
More 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 level at 88 without reaching the order at 81 we recommend cancelling the position: the market sustains internal changes that were not taken into account.
Technical Analysis Summary
Position - Sell
Sell stop - Below 81
Stop loss - Above 88