Commercial Selling Ahead Of Seasonal Hog Decline


COT Signals

via Seeking Alpha - Dec. 4, 2018




         The hog market is seasonally weak between Thanksgiving and Christmas.


         The rally in place since August faces serious overhead resistance.


         Commercial traders have hastened their selling considerably as this resistance is tested.


Our last new trade for November is short selling the February lean hog contract. The commercial hog producers are becoming increasingly anxious to get their animals sold forward at these prices against a backdrop of Chinese demand and regulatory uncertainty. Conversely, the speculators have been adding to their net long position as the market approaches solid resistance up to $.70 per/lb. Last year, this same setup produced nearly a three-week decline before making one final rally in January and falling for the rest of 2018.


We think seasonal weakness will reinforce the overhead resistance and send hog prices lower as indicated by the increased selling of the commercial traders.


The model Iíve constructed to illustrate our exploitation of this seasonal tendency is shown below in out-of-sample only performance. We looked at the last fifteen years of data to develop a seasonal commodity trading strategy that can be employed with limited risk yet, still have a decent winning percentage. However, itís important to remember that commodity trading is risky and markets like lean hogs can move in a locked limit fashion which may prevent a protective stop loss order from being executed thus, significantly expanding the pre-trade risk analysis.


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