Reversion to the mean

Taking a contrarian perspective can often be the right strategy with commodity markets. Taking the maxim ‘the cure for high prices is high prices’ and its antithesis then there will come a point in any market that momentum reverses and prices return to (or at least towards) the mean.

In this post we introduce one way of calculating the potential for mean reversion that uses the z-score. A z-score is simply the number of standard deviations separating the current price from the mean price. The strategy then looks at the momentum of the average z-score and takes a contrarian approach to trading to generate buy and sell signals. If the z-score is positive, it means that the current price of the security is above its mean. Correspondingly, if the z-score is negative, the current price of the security is below its mean. Although most trading packages calculate it, click here for how to calculate it in excel.

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Materials Risk Dynamic Hedge: Nickel back and the OPEC cut paradox

Chart of the week

2017 not so good for nickel: BMI (

The Case For Real Assets: Buy Humilation, Sell Hubris (Zero Hedge)

Goldman Sachs says copper is about to ‘hit a wall of supply’ (CNBC)

The impact of rising coal prices (Timera Energy)

Top Tweets

The OPEC cut paradox:
The more countries willing to cut, the more likely a deal
but the less likely the cut will occur

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Low and behold: Oil price forecasts for 2016 including one for $5 per barrel

Economist don’t forecast because they know, said J.K. Galbraith, they forecast because they’re asked. The same is true of oil price forecasters. Without commentary here is a selection of oil price forecasts from 2016 – some more accurate than others…

Jan – oil price predictions for 2016 including Libya’s prime minister predicting $5 per barrel

Jan: Marc Faber – gold & oil price predictions

Jan: Prediction oil heading to $20 on dollar strength

May: David Rubenstein – oil Back to $70 Range Next Year

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