Hog/Corn Spread: Book The Profits

Lean Hog/Corn Spread Exit

On October 14th the IMC blog entered a hypothetical short position in the April-May hog/corn spread at approximately +$17,850 (premium hogs). We are currently using a two-day close above the declining 50-day Moving Average for the exit signal.

April Hog May Corn spread daily

April Hog May Corn spread daily

Tomorrow is the expiration day for the April hog contract, so we have to liquidate this side of the spread. The problem is that the July hog/corn spread surged above the 50-day MA today. Therefore, it may be prudent to take the money in the current position and run. We can then sit back and watch for a new setup in the July spread.

July Hog Corn spread daily

July Hog Corn spread daily

Lucky for us, the July hog/corn spread is trading at a premium of more than $6k to the April-May spread. Recall that the hog/corn spread has historically been a great short sale candidate when it reached +$15k or higher. The July spread rallied to a high of +$13k today, so the +$15k mark is within reach. The Fibonacci .618 retracement of the current decline from the contract high is located at +$15,771 and the current 2015 high is at +$15,947.50. A bounce into this area, followed by a reversal lower, could be an ideal setup to get back in the game. We will watch this one closely.

Trade Strategy:

For tracking purposes, the blog will liquidate the hypothetical short April-May hog/corn spread position at today’s close by buying back the short April hog contract and selling the long May corn contract.

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s