wmeubank@ocp.kcmo.com
(May 4, 1997) LIVESTOCK: The pork complex is emitting serious signals that a deeper break is in store for hogs and bellies. Late this past week for instance, one of my indicators issued a "sell signal" for August hogs for the first time since late March. That sell signal, by the way, fit nicely with the weakness that many of the surrounding markets are just now experiencing.
I am not suggesting that the bull market for pork has ended. But from current levels, hogs and bellies could take a very hard hit yet remain fully entrenched in a bull trend, August hogs for instance, have rallied from 70.67 on March 19, to a high of 84.45 on April 24. Anytime a hog futures contract rallies nearly 14 cents in a bit over a month, a sharp and unexpected break can take place at any time.
It is also my bias at this time to be a seller of cattle at current levels. On May 1, for instance, I went short (2) August cattle at 65.25. That recommendation was made in the last issue of this newsletter. In addition to being short August cattle, I am now recommending to buy (2) October feeders and sell (2) August live cattle at the market as a spread. Exit this trade if the spread narrows to less than 1000 points on a close only basis. On Friday, the spread between those two commodities was 1160 points.
Jerry F. Welch
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