Feeder/Corn Spread: Reentry Signal Triggered

Back In the Rodeo

The IMC blog reentered the short side of the feeder/corn spread today when April feeder cattle broke support at last week’s low.

The short position was entered by selling one 50,000 lb. April feeder cattle contract at 158.325 (contract value of $79,162.50) and simultaneously buying five 5,000 bushel May corn contracts at $3.62 1/2 (a total contract value of $90,625). Therefore, the position is short from -$11,462.50 (premium the sum of the five corn contracts). The initial exit criteria will be to liquidate on a two-consecutive day close above -$6,462.50 (premium corn).

April Feeder Cattle weekly

April Feeder Cattle weekly

As noted in the prior post, the break below a previous week’s low in feeders would indicate that the bear market rally is over. The fact that it happened after testing resistance at the declining 50-day Moving Average (basis the nearest-futures) was already a good sign, but the fact that it resulted in an ‘outside bar’ with a downward reversal on the weekly timeframe is even better. If this is the resumption of the downtrend for the spread, we will be watching for opportunities to add to the position.

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