Hardly Happier Than A Pig In Mud

It was just a little over a month ago that all seemed well in Hog Heaven. It was predicted that China would significantly ramp up purchases of lean hogs from the U.S. as part of the trade agreement between the two countries and more buying would be tied to the spread of African Swine Flu which had been ravaging China's pig population.

Lean hogs were trading at their highest levels in four months at the end of last year. The price, while slightly below the 200-day moving average (but still above the 50-day and 100-day averages) seemed only to have one direction to travel - higher.

Bring in news of the coronavirus in China and talk that a vaccine may be successful to treat pigs with the African Swine Flu, and lean hog prices have tumbled. For the month of January, they fell 21% - in the week ended Jan. 31, they were off 15%. At the end of December, lean hogs had an RSI (Relative Strength Index) value of 68.63 - very close to the 70 value that usually signals to momentum traders that an instrument is overbought. Now, at the end of the month, that RSI has crashed to 22.36 - well below the RSI value of 30 that typically signals an instrument is oversold.

We track all of these indicators on Excalibur Pro - and others, like the MACD. But we also have applied the Markov Process to financial instruments - a process that looks at returns and volatility over a 1 1/2 year period of time and through the lens of a stochastic process. Markov often gives interesting signals. It is currently showing significant bearishness - but some bull signals have begun to creep in. One way we track Markov is through a smoothing process. We take a look at the number of days for the trailing month that Markov threw off a strong bull or strong bear signal (as defined by a value above 0.8 for either one) and we chart that. In the chart accompanying this blog item, we can see the Markov bear signals over time began to lessen and a few bull signals cropped up.

No one momentum indicator will lead you to the pot of gold - but taking a handful of good ones together can help make informed decisions.