Soybean/Cotton Spread: Bearish Trend Change Triggered!

The Great Unraveling…Hopefully

Yesterday the Nov-Dec bean/cotton spread closed below the rising 30-day Moving Average for the first time since the first week of 2016.  This signaled a bearish trend change and elected the blog’s criteria for a hypothetical short sale.

The November soybean contract was sold short at $11.01 1/4 (contract value of $55,075) and the December cotton contract was purchased at 65.42 (contract value of $32,710).  This puts us in the spread at +$22,365 (premium beans).  Initially, we are risking a two-consecutive day close above +$26,400 (premium beans).

Nov-Dec 2016 soybean cotton spread daily

Nov-Dec 2016 soybean cotton spread daily

Recall from the previous post that prior excursions to +$20,000 (premium beans) or higher have been followed by bear markets that took the spread down to at least even money.  Therefore, we anticipate that we’ll see some pyramiding opportunities to take full advantage of the decline.  Once we have a big enough open profit on this trade we will examine the market volatility and price patterns to determine the best course of action for ‘add-on’ trades.

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