Add Mutiny to Mayhem in the Oil Market

The Other Meat

Pork contracts have been on a tear since breaking out on Oct. 14 and then providing a gift, second-entry opportunity the following week. February hogs (LHG3:CME) have rallied strongly since the breakout, adding over 7 cents. Hogs are now setting up in a low-volatility situation, the result of six consecutive narrow closes within .060 of one another.

While low-volatility situations don't indicate market direction -- only that a larger-than-normal move is likely -- recent price action suggests the move out of the low-volatility situation will be up. Upside momentum is still abundant; hogs haven't closed below their 10-day moving average for more than one day at a time in the past two months.

Subtle clues within the current consolidation also suggest the next move could be higher. Hogs reached a contract high on Nov. 27, but have since failed to fill this chart void on a closing basis. The past six sessions have also registered higher highs and higher lows, another hint of direction. Look for hogs to continue their run, and to do so with an explosive bar. Hogs were holding onto gains on Thursday, setting up the potential for this market to trigger out of a pullback within the next one to four days.

Although they are a much thinner (lower volume) market, pork bellies have a positive correlation with hogs, and an upside setup that enhances the bullish view in the pork complex. February pork bellies (PBG3:CME) are triggering Thursday's session out of a classic three-bar-pullback-from-high pattern. Notice how bar three in the pullback left a tail at the 10-day moving average in an example of constructive behavior for any market.

Finally, March cocoa (CCH3:NYBOT) has been rebounding in the face of renewed rebel activity in Ivory Coast, the biggest global producer. But the contract could have a difficult time breaking through tight Fibonacci resistance depicted in the following chart. Resistance at the cluster, at Thursday's 1908 high, sets up a defined-risk shorting opportunity.

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