So I hope there's no dumb questions. I'm looking at Special Spread Charts lean Hogs Dec23 Jul 24
Whats the difference between Average and non-average charts. (In the listing # 12 & 13)
For instance on the mentioned chart Average pg 50 LHZ23 LHN24 the 15 yr average price reads - -17 while on the standard chart pg 27 the 15 yr seasonal price reads - 29.
No, there are no dumb questions. Always better to understand than to be uncertain. In this case, there is a significant if not always discernable difference.
Charts in line #12 labeled "average" do indeed depict what has been the 15-year average spread on any given date. Both the current spread and the 15-year average spread are plotted against price on the vertical y-scale.
In contrast, line #13 depicts the current spread (plotted against the price on the y-scale) against the seasonal pattern --- with pattern being the operative word. The pattern is not an average of price but rather of the typical position of price relative to the eventual high and low for the year.
We create a seasonal pattern as follows:
Assume in Year #1 that price on Day #1 was 12 and that the eventual low and high for Year #1 was 10 and 15, respectively. We assign it a value of 40 --- 40% off the eventual low toward the eventual high.
Assume in Year #2 that price on Day #1 was 16 in an eventual range of 15 to 20. We assign it a value of 20 --- 20% of the low toward the high.
We then perform the same calculation for Day #1 of Years #3-15 --- and average those.
We then perform the same calculation for Days #2-365 for all 15 years.
When we connect the dots --- a seasonal pattern appears that illustrates when the spread has typically made a seasonal low and when a seasonal high and what trends in between tend to look like.
The computer then plots the current spread price versus time as usual and only then fits the seasonal pattern as closely as it can to pattern of trading exhibited thus far by the current market. That total picture can suggest how well or not the current market is behaving "normally" (as suggested by the seasonal pattern) and when one could anticipate future highs, lows, and trends. In other words, the seasonal pattern can suggest when and in which direction the spread normally moves but should not be used to suggests price objectives. For instance, if the current spread abruptly becomes more volatile and its price range expands, the seasonal pattern may well widen its high-low range also --- but its highs, lows, and trends will remain in place versus the horizontal x-axis.
-Jerry Toepke
