Soy Meal/Bean Oil Spread: Out With Profits

Booked Profits

The recent pop in the soy complex caused the July soy meal/bean oil spread to make a two-day close above the 50-day Moving Average for the first time in nearly seven months.  This signaled a bullish trend change and triggered an exit signal on the blog’s short position.

July Soy Meal Bean Oil spread daily

July Soy Meal Bean Oil spread daily

The IMC blog was hypothetically short the July soy meal/bean oil spread from the equivalent of +$13,498 (the trade was initiated on October 2nd and has been rolled over).  The position was liquidated at +$8,384 on April 12th, resulting in a profit of +$5,114 per spread.

What Now?

The rebound in the July soy meal/bean oil spread has pushed it up near the Fibonacci .382 retracement of the entire decline from last summer’s top.  If the rally continues it could return to the current high of the year.  This would put it near the midpoint of the decline.

After reaching such lofty heights over the last couple of years, it made sense that we could expect a bear market decline into the even money area where the value of a soy meal contract and a bean oil contract are the same.  After all, this is how it usually played out in the past.

Soy Meal Bean Oil spread monthly

Soy Meal Bean Oil spread monthly

The four-year low that was tagged at the start of this month merely put the spread and the ratio near the midpoint of the price range of the last three decades.  Since it hasn’t reached the even money target yet, this still leaves the soy meal/bean oil spread on the table as a potential short sale candidate.  Therefore, we’ll watch how the current rally plays out and see if there’s a new setup to get short again when it rolls over.

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