The ‘Has-Bean’ Bull Run?
The IMC blog entered a short position in the September soy meal/bean oil (x2) spread yesterday at +$500 (premium meal) when it sold one soy meal contract at $363.80 (a value of $36,380) and bought two bean oil contracts at 29.90 (total contract value of $35,880). The position is initially being risked to a two-day close above +$3,000 (premium meal).
The short sale was initialed because the spread closed below the rising 30-day Moving Average for the first time in nearly three months and signaled a trend change. This occurred just a week after the spread had closed at +$3,244 (premium meal) on the weekly nearest-futures chart …a price that has only been surpassed two times in the last forty-five years.
An end-of-week close below the mid-June pullback low of -$148 (premium bean oil) would alter the multi-month pattern of higher highs and higher lows. This would increase the odds that the bull run is over.
Historically, prior bull markets that took the soy meal/bean oil (x2) spread up to where the soy meal had the premium were followed by declines that put the bean oil premium at $10,000 or more. In most cases, the spread even dropped to -$20,000 (premium bean oil) or lower. So getting short while the meal still has the premium is an ideal position to be in. If the top is in, the spread has thousands of dollars –maybe even tens of thousands of dollars– of downside ahead of it. You can bet that we’ll be looking for opportunities to pyramid the short position as the meal products get crushed.