As the market’s long-term continuous monthly chart shows, lean hogs have made an impressive move since hitting a low of $70.20 this past December. As always, lean hogs are tricky when we start to put the technical pieces together:

  • The major (long-term) trend turned down with the completion of a bearish key reversal during June 2021.
    • Given this, the December low would be viewed as Wave A (first wave) of a 3-wave downtrend pattern.
    • The ongoing rally through mid-February looks to be Wave B, with Wednesday’s close by the Feb issue of $90.225 a test of the 38.2% retracement target of Wave A.
      • Given fundamentals are neutral (April-June spread ) to bearish (Feb-April spread), Wave B would be expected to peak between the 38.2% retracement and 50% retracement level of $96.462.
      • Applying the Benjamin Franklin Fish Similarity (Markets, like guests and fish, start to stink after three (timeframes) moving against the prevailing trend), with February being the third month of Wave B.
      • However, the Feb contract expires this week, meaning the April contract will take its place on this continuation chart
      • And April is trading at $105.125, putting it above the 61.8% retracement level of $102.65.
  • The argument could also be made the major trend turned up this past December, as a bullish key reversal was completed.
    • When April takes over as the nearby contract, it will do so by also establishing a new 4-month high beyond October’s $92.65.
  • That having been said, the April contract is sharply overbought as it posts a new contract high of $105.825 this week.
    • As mentioned above, the April-June futures spread is sitting in neutral territory heading into Thursday’s session.

I don’t have a solid conclusion for lean hogs. However, I’ll be watching for:

  • A possible secondary (intermediate-term) topping pattern on the April weekly chart, indicating the major Wave B rally could be coming to an end.