Feeder/Corn Spread: The Exit Signal Was Triggered and Profits Were Taken

Feeder Cattle/Corn Spread

A hypothetical short position was initiated in the August-September feeder/corn (x6) spread at -$6,975 (premium the sum of the six corn contracts) on June 25th.

After cracking price support between the December and February lows, we decided to use a two-day close back above this area as a new exit signal. This is because a break below support, followed by a quick recovery back above it, would signal a failed bearish breakout attempt. Usually, a sustained rally would follow such an event. We call this a Wash & Rinse buy signal. At the very least, it is a good reason to exit short positions.

October Feeders September Corn (x6) spread daily

October Feeders September Corn (x6) spread daily

The liquidation parameters were triggered at yesterday’s close of -$14,975. This was the second day in a row that the August-September feeder/corn (x6) spread closed above -$22,500. The hypothetical short position would have been exited with s profit of approximately $8,000, not including commissions. We will now sit on the sidelines and see how far it runs. With a little luck, we might see a run to the Fibonacci .618 retracement before we get a reentry setup. This would put the spread in close proximity to the original entry price.

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