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IRA EPSTEIN & COMPANY
223 West Jackson, 7th Floor, Chicago, Illinois
(November 17, 1997) HOGS: February lean hogs have been consolidating for the past month within a 3-cent range. Currently, support rests near 60 cents with resistance at roughly 63 cents. In my opinion, this 3-cent consolidation is indicative of a transitional hog market.
For the past few months, hog supplies have been rather abundant. At the same time, retail demand has been relatively dismal prompting a 10- cent decline in hog values from roughly 70 cents to 60 cents.
After this month I believe lean hog supplies will begin a gradually decline, as they have tended to do on past seasonal basis. In addition, I believe retail demand should begin to improve as we approach the holiday ham season.
In summary, it is the transition from larger to smaller hog supplies and from weaker to stronger demand which I believe is mainly responsible for the range bound price activity. In my opinion, however, it is only a matter of time before lean hogs begin to move higher.
Technically, February lean hogs have reached the bottom of what I believe is a downward trending channel with support near 60 cents. A double bottom formation may be developing near current support, projecting a return to trend resistance at roughly 67 cents. Additionally, I believe bullish divergence is beginning to appear on the stochastics.
In my opinion, bullish divergence occurs when price reaches a new low and the stochastics do not. I feel bullish divergence combined with other support levels can often be used as a reliable buy signal. In this instance, long positions may be established near the channel with risk limited to the 60-cent level.
Mike Peifer
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