Live Cattle Futures traded at the Chicago mercantile Exchange gained ground in the last two trading days, experiencing two consecutive 'big' high volume rallies to close Monday at $95.85. In the last two days, live cattle futures have gained 1.9% and have rallied in four of the previous five trading days. The lone decline in the last week came last Thursday, and it constituted a 'very big' loss.
Q: How have live cattle futures performed in the past when it experiences a 'big' decline followed by two consecutive 'big' rallies when both the rallies came on high trading volume? A 'big' rally is defined as a percentage gain of more than one standard deviation above the average move measured over the previous 30 trading days.
A: According to the six previous occurrences of this event, omitting repeat occurrences within 10 trading days, live cattle futures have shown a very strong bullish edge that peaks 42 trading days after the event. Thus, the projected date for the peak of the bullish edge relative to the most recent occurrence of the event (Monday, Nov. 5, 2007) is Monday, Jan. 7, 2008.
Cattle futures rally in 100% of the cases (6 of 6) by an average of 4.5% relative to the close on the event date. The overall return of the six cases is 4.5%, which, based on the close on the event date ($95.85), provides a target price of $100.163.
There are many possible ways to make these restrictions less strict altering the results slightly but still remaining generally bullish.
If you would like to see more details of this historical edge, go to www.markethistory.com
Ryan Soudan is an analyst with MarketHistory.com.
