Lean Hog Futures (CME.LH) rallied a 'big'* 1.7% during Wednesday's session to close the day at 74.25¢ per lb. After Wednesday's gain, CME.LH crossed above an RSI level of 70.
An RSI (Wilder's Relative Strength Index) level of above 70 suggests that it is being 'overbought' and may be an indication to sell, according to the traditional interpretation. But history suggests it is still time to buy.
* One-day percentage gain is more than one standard deviation stronger than the average one-day percentage change measured over the last 30 trading days.
Q: How has CME.LH performed in the past, omitting repeat occurrences within 10 trading days, when, during April, it records a 'big' rally while trading at an RSI level above 70?
A: According to the 15 previous occurrences of this event, EventEdge indicates that CME.LH has shown a strong bullish edge that peaks 20 trading days after the event. Thus, the projected date for the peak of the bullish edge relative to the current event date (Wednesday, April 23, 2008) is Wednesday, May 21, 2008.
CME.LH rallies in 93% of the cases (14 of 15) by an average of 7.3% relative to the close on the event date. The average of the one decline is 0.5%. The overall return of the 15 cases is 6.8%, which, based on the close of CME.LH on the event date (74.25¢), provides a target price of 79.299¢.
If you would like to see more details of this historical edge, go to www.markethistory.com
Ronish Patel is an analyst with MarketHistory.com.
