Lean Hog Futures rallied a 'big' 2.4% on the first trading day of August on Friday. LH closed the day at 81.575¢ per lb. and traded at a new 13-week high (81.8¢/lb.) during the session. LH performed well during July, rallying over 10% for the month. Will LH continue to gain in August?
Moreover, due to the recent bullishness, LH saw its RSI level rise above 70 on Friday. 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.
Q: How has CME.LH performed in the past, omitting repeat occurrences within 10 trading days, when, while trading at a 13-week high, it has an RSI level above 70 during the month of August?
A: According to the 25 previous occurrences of this event, EventEdge indicates that CME.LH has shown a somewhat bullish edge that peaks eight trading days after the event. Thus, the projected date for the peak of the bullish edge relative to the current event date (Friday August 1, 2008) is Wednesday, August 13, 2008.
CME.LH rallies in 80% of the cases (20 of 25) by an average of 3.7% relative to the close on the event date. The average of the four declines is 1.4%. The overall return of the 25 cases is 2.8%, which, based on the close of CME.LH on the event date (81.575), provides a target price of 83.859¢/lb.
The second graph depicts, more specifically, how the front month August contract (LHQ) performs after the same event. In this case, according to the 16 previous occurrences of this event, LHQ peaks nine trading days after the event with a projected peak ate of Thursday, August 14, 2008.
LHQ rallies in 75% of the cases (12 of 16) by an average of 4.1% relative to the close on the event date. The average of the four declines is 0.3%. The overall return of the 16 cases is 3.0%, providing a target price of 84.02¢/lb
Note that the first graph measures its strength using the T-score rather than the usual Z-stat as it takes into account the rather large number of occurrences. But to see the Z-stat graph and the idea in our EventEdge® analysis tool by clicking here. Also take a look at another recent bullish LH story published on the site by clicking on the link below.
Last but not least, CME.LH has also shown somewhat of SeasonalEdge® this time of year.
Ronish Patel is an analyst with MarketHistory.com.
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Lean Hog Futures - Bull Riding - July 21, 2008
