Bund/BOBL spread: Shift to the December Contracts

Buying More Time

The IMC blog is working orders to short the September Bund/BOBL spread.  We’ve been doing this for months, actually.  The spread has continued to climb, so we have just patiently waited for a trend change to materialize before we throw our hat in the ring.

September treasury contracts are expiring soon.  Therefore, we need to recalibrate our short sale parameters and start stalking the December Bund/BOBL spread.

It appears that the December Bund/BOBL spread has found stiff resistance as soon as it crossed the 33.00 level.  This spread peaked at 33.24 on July 5th and backed off.  It then posted a new contract high of 33.41 on July 29th, but quickly retreated again.  Then the spread made it all the way back up to 33.36 just this past Friday.

December Euro Bund Euro BOBL spread daily

December Euro Bund Euro BOBL spread daily

On the one hand, the fact that the spread just can’t get past this barrier makes it tempting to short against.  On the other hand, the more a spread tests support/resistance, the more likely it is to eventually break it.  Therefore, we are inclined to wait for a break of support before we get short.

The December Bund/BOBL spread made its low for the month at 32.51 on August 2nd.  It got awfully close on August 16th when it dropped to 32.55, but the spread recovered again and went on to make new highs for the month.  Therefore, the IMC blog will consider a break of these similar lows a support breach worthy of an entry signal on the short side.

Weekly Confirmation

On the weekly timeframe, we’ve been monitoring the rising 30-bar Moving Average for support.  The spread has closed above the weekly 30-bar MA every week for a year straight now.  A close back below would signal a bearish trend change on this timeframe.

Recall what happened when the Bund/BOBL spread closed below the weekly 30-bar MA and triggered a bearish trend change in 2013 and 2015.  The decline continued for months afterwards.  We want to make sure we are swimming downstream with the tide when that happens again.

Euro Bund Euro BOBL spread weekly

Euro Bund Euro BOBL spread weekly

Coincidentally, the weekly 30-bar MA is currently located at 32.65.  When the December spread becomes the nearest trading month this week, then a break of the current August low will also put the Bund/BOBL spread below the weekly 30-bar MA.  This could create a one-two punch by way of a technical support break on two different timeframes.  It’s hard to get a better setup than that.

Trade Strategy:

Cancel the current hypothetical order to short the September Bund/BOBL spread and replace it with a new hypothetical order to sell one December Euro bund contract and simultaneously buy one December Euro BOBL contract if the spread closes below the current August low of 32.51.  Initially, the spread will be liquidated on a two-consecutive day close 10 ticks above the contract high that precedes the entry (currently at 33.41). 

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Corn/Oat Spread: Cancel the Short Sale Order…For Now

Head For the Sidelines

The IMC blog has been working an order to short the September corn/oat (x2) spread on a rally to ‘even money’.  With the First Notice Day coming up the day after tomorrow, we are going to withdraw the order to short the September spread.

December Corn Oats (x2) spread daily

December Corn Oats (x2) spread daily

The December spread has never been to the even money mark.  If we went short up there, we would be fading a breakout to new highs.  It seems that the more prudent course of action would be to monitor the December corn/oat (x2) spread and see what happens if/when it reaches the ‘even money’ mark.  Then we can decide if we should get short at that point or sit on our hands if it’s still rocketing higher.

Trade Strategy:

Cancel the hypothetical order to sell one 5,000 bushel September corn contract and simultaneously buy two 5,000 bushel September oat contracts at ‘even money’. 

Soy Meal/Bean Oil Spread: Let’s Keep On Rollin’

Roll to the December Spreads

The blog entered a short position in the September soy meal/bean oil (x2) spread at +$500 (premium meal) on July 7th.

The blog entered a second short position in the September soy meal/bean oil (x2) spread at -$3,386 (premium bean oil) on August 2nd.

The blog entered a third short position in the September soy meal/bean oil (x2) spread at -$5,892 (premium bean oil) on August 15th.

The blog entered a fourth short position in the September soy meal/bean oil (x2) spread at -$7,968 (premium bean oil) on August 19th.

We are currently in the September spreads.  They need to be rolled to the December contracts because of the First Notice Day for all of the September grain contracts on Wednesday.  So let’s go ahead and get this done today.

December Soy Meal Bean Oil (x2) spread daily (30-day MA)The soy meal/bean oil (x2) spread has been in a steady decline for nearly two months now.  We are still targeting a downside price of -$20,000 (premium bean oil) or lower.  The aggressive pyramiding plan is to keep adding every $2k lower.  Eventually, we are going to get knocked out of the trade.  But large grain crops and bearish seasonal patterns in the September/October timeframe might allow us to keep getting “lucky” and ride it to the -$20k level before we get out.  Keep your seatbelt on!

Trade Strategy:

On the four short September soy meal/bean oil (x2) spreads entered at +$500, -$3,386, -$5,892, and -$7,968, roll to the December contracts at the market-on-close on Monday, August 29th.  Risk all four of the December spreads to a two-day close above -$6,900.

‘Add-On’ Trade Strategy:

The blog will sell another December soy meal/bean oil (x2) spread on a close below -$10,900 (premium bean oil).  If filled, exit all five spreads on a two-day close of $2,000 or more above the entry price of the fifth spread.

If the fifth position is entered, sell another December soy meal/bean oil (x2) spread on a close $2,000 below the entry price of the fifth position.  If filled, exit all six spreads on a two-day close of $2,000 or more above the entry price of the fifth spread.

To enter a short position in this spread, sell one 100-ton December soy meal contract and simultaneously buy two 60,000 lb. December bean oil contracts.

Kansas City/Chicago Wheat Spread: Roll to the December Contracts

Goodbye Labor Day, Hello Christmas!

The IMC blog is holding a long position in the September Kansas City/Chicago wheat spread.  It was entered at -13 3/4 cents (premium CBOT wheat) on July 6th.  An ‘add-on’ position was entered at +6 1/4 cents (premium KC wheat) on August 26th.

With the First Notice Day for the September grain contracts hitting on Wednesday, it’s time to roll the position to the December contracts.  Fortunately, the December spread is only a couple of pennies higher than the September spread.  Based on what has transpired in history, there should be at least another 20 or 30 cents of upside from the current levels.

December Kansas City Chicago Wheat spread daily (30-day MA)

December Kansas City Chicago Wheat spread daily (30-day MA)

The December KC/Chicago wheat spread signaled a bullish trend change in early July.  Since then it has made a series of higher highs and higher lows.  In addition, the spread has closed above the rising 30-day Moving Average every day for the last several weeks.  Therefore, we will continue to hold the initial position and the pyramid position as long as it continues to hold above the 30-day MA.

Trade Strategy:

On the long September KC/Chicago wheat spread that was entered at -13 3/4 cents (premium CBOT wheat) and the long September KC/Chicago wheat spread that was entered at +6 1/4 cents (premium KC wheat), roll to the December contracts at the market-on-close on Monday, August 29th.  Risk the two December spreads to a two-day close below the rising 30-day Moving Average.

Soybean/Cotton Spread: Let’s Book the Profits

Taking the Money Off the Table

The IMC blog entered a short position in the Nov-Dec bean/cotton spread at +$22,365 (premium beans) on June 23rd.  Based on the way it has behaved in August, we’re inclined to book the profit and wait for a new setup to go back in.

First of all, the spread had price support at a double bottom between the August 21, 2015 low of +$11,382 and the December 28, 2015 low of +$11,430.  This support area was breached on August 1st and the spread stayed below this level for a full week.

Nov-Dec 2016 soybean cotton spread daily (support line)

Nov-Dec 2016 soybean cotton spread daily (support line)

This should have led to an accelerated decline toward the ‘even money’ level.  Instead, the spread reversed and closed back above the double bottom on August 9th.  This failed breakdown is something we call a Wash & Rinse pattern.  It’s a bullish sign.

The second bullish development for the Nov-Dec bean/cotton spread occurred on August 15th when it closed back above the 30-day Moving Average.  The January-June run higher was supported by the 30-day MA and the July meltdown was capped by the 30-day MA.  Now that the spread is back above the 30-day MA it is in a bullish position again.

Nov-Dec 2016 soybean cotton spread daily (3-day MA)

Nov-Dec 2016 soybean cotton spread daily (30-day MA)

The Nov-Dec bean/cotton spread made a sharp pullback last week and it seems to have stabilized above the 30-day MA.  Therefore, we’ll use it as an opportunity to cover the short position.  After that, we’ll monitor the spread for a setup to get back in.

Trade Strategy:

On the short position in the Nov-Dec bean/cotton spread entered at +$22,365 (premium beans), liquidate the position at +$14,865 or better.

Crude Oil/Nat Gas Spread: We Bought ‘Em Near the Bottom

A Wicked Reversal

At the beginning of the month, the IMC blog took a hit on a position on the long side of the December crude oil/natural gas (x2) spread when it smashed prior price support to smithereens.  However, the fact that the spread looked overdone and the fact that the December crude/nat gas ratio appeared to be establishing a double bottom lured us back in.

Not only did we go back in, but we went in aggressively.  The trade strategy was to get back into a long position with an initial exit signal if the ratio broke the double bottom.  Then we’d add more once the spread close back above the “ice level” of -$17k.  Finally, a third purchase would be made if the December crude oil/natural gas (x2) spread could clear the July high and close above -$14k.

This took place over the last week and a half.

December Crude Oil Natural Gas (x2) spread daily

December Crude Oil Natural Gas (x2) spread daily

The blog entered a long position in the December crude oil/natural gas (x2) spread at -$20,000 (premium nat gas) on August 5th, the blog purchased a second spread at -$15,310 on August 11th, and a third position was entered at -$13,690 on August 15th.

We are now loaded up.  Initially, we are looking for the spread to reach a resistance zone between the March 7th high of -$6,840 and the May 18th high of -$5,730.  Once the spread gets into this area, we will monitor the price behavior closely to determine our next course of action.

If the December crude oil/natural gas (x2) spread starts to flounder in the resistance zone, we may take partial or all profits on the trade.

If strength persists, however, we may just sit back and let it ride.  It is possible that the spread could be on its way up to challenge the 2015 high of -$1,540.

Soy Meal/Bean Oil Spread: Bearish Pyramid Building Continues

Triple Play

The blog entered a short position in the September soy meal/bean oil (x2) spread at +$500 (premium meal) on July 7th.

The blog then entered a second short position in the September soy meal/bean oil (x2) spread at -$3,386 (premium bean oil) on August 2nd.

On August 15th the blog entered a third short position in the September soy meal/bean oil (x2) spread at -$5,892 (premium bean oil).

September Soy Meal Bean Oil (x2) spread daily

September Soy Meal Bean Oil (x2) spread daily

With the ‘add-on’ entries, the position has increased three-fold.  We are now going to risk all three positions to a two-day close above -$3,892 (premium bean oil), which is $2k above the most recent ‘add-on’ entry price.

Eye On the Ball

Our minimum downside target for the September soy meal/bean oil (x2) spread is the contract low of -$14,778, but we could easily see a descent to -$20,000 (premium bean oil) or lower.  Therefore, we will continue our pyramiding strategy to add every $2k down.

‘Add-On’ Trade Strategy:

The blog will sell another September soy meal/bean oil (x2) spread on a close below -$7,892 (premium bean oil).  If filled, exit all four spreads on a two-day close of $2,000 or more above the entry price of the fourth spread.

If the fourth position is entered, sell another September soy meal/bean oil (x2) spread on a close $2,000 below the entry price of the fourth position.  If filled, exit all five spreads on a two-day close of $2,000 or more above the entry price of the fifth spread.

To enter a short position in this spread, sell one 100-ton September soy meal contract and simultaneously buy two 60,000 lb. September bean oil contracts.

Soy Meal/Bean Oil Spread: Doubled Up and Ready For More!

The Crush Spread Is Getting…Crushed

The blog entered a short position in the September soy meal/bean oil (x2) spread at +$500 (premium meal) on July 7th.  The blog then entered a second short position in the September soy meal/bean oil (x2) spread at -$3,386 (premium bean oil) on August 2nd.  Both positions will be risked to a two-day close above at -$1,386 (premium bean oil), which is $2k above the ‘add-on’ entry price.

In addition to triggering the ‘add-on’ short sale signal, the spread also did some technical damage when it closed back under last summer’s peak at -$2,518.  The close back under this high negates the mid-May breakout.

September Soy Meal Bean Oil (x2) spread daily

September Soy Meal Bean Oil (x2) spread daily

We are looking for the September soy meal/bean oil (x2) spread to return to the contract low of -$14,778.  But since most bear markets that occurred after meal reached a premium over bean oil descended to -$20,000 (premium bean oil) or lower, it would not be at all surprising if the spread fell right through the bottom of the chart.

As per the pyramiding strategy we laid out in the previous post on this spread, the blog will continue adding to the position every $2k down.

‘Add-On’ Trade Strategy:

The blog will sell another September soy meal/bean oil (x2) spread on a close below -$5,386 (premium bean oil).  If filled, exit all three spreads on a two-day close of $2,000 or more above the entry price of the third spread.

If the third position is entered, sell another September soy meal/bean oil (x2) spread on a close $2,000 below the entry price of the third position.  If filled, exit all four spreads on a two-day close of $2,000 or more above the entry price of the fourth spread.

To enter a short position in this spread, sell one 100-ton September soy meal contract and simultaneously buy two 60,000 lb. September bean oil contracts.

Meal/Bean Spread: Pyramid Criteria Was Met

Double Up

The blog entered a short position in the Dec-Nov soy meal (x2)/soybean spread at +$21,125 (premium meal) on June 23rd.

The blog entered a second short position in the Dec-Nov soy meal (x2)/soybean spread at +$17,690 (premium meal) on August 2nd.

December Soy Meal Soybean (x2) spread daily

December Soy Meal Soybean (x2) spread daily

We are now short a pair of spreads from an average price of +$19,407.50.  Both positions will be risked to a two-day close above +$20,690 (premium meal), which is $3k above the ‘add-on’ entry price.

At the very least, we are looking for the December spread to return to the April 4th contract low of +$8,975.  However, historic precedent makes it a reasonable expectation for the spread to ultimately make it to ‘even money’ or lower.  Therefore, we are going to continue adding to the short position in $3k intervals.

‘Add-On’ Trade Strategy:

The blog will sell a third Dec-Nov soy meal (x2)/soybean spread on a close below +$14,690 (premium meal).  If filled, exit all three spreads on a two-day close of $3,000 or more above the entry price of the third spread.

If the third position is entered, sell another Dec-Nov soy meal (x2)/soybean spread on a close $3,000 below the entry price of the third position.  If filled, exit all four spreads on a two-day close of $3,000 or more above the entry price of the fourth spread.

To enter a short position in this spread, sell two 100-ton December soy meal contracts and simultaneously buy one 5,000 bushel November soybean contract.

Kansas City/Chicago Wheat Spread: A Setup To Pyramid

On a Tear

The IMC blog entered a long position in the September Kansas City/Chicago wheat spread at -13 3/4 cents (premium CBOT wheat) on July 6th.  The spread reached a three and a half month high just this week before pulling back.

The current pullback gives us the setup we need to add to the position.  Quite simply, traders can add on a close above the August 2nd watermark high of +5 1/4 cents (premium KC wheat) and risk to just below the current pullback low.  Nice and neat.

September Kansas City Chicago Wheat spread daily

September Kansas City Chicago Wheat spread daily

Historically, inversions in the KC/Chicago wheat spread were followed by reversals where the KC wheat would go back to a premium of 35 to 40 cents or more over the Chicago wheat.  So buying a close above +5 1/4 cents (premium KC wheat) should leave plenty of profit potential for this ‘add-on’ trade.

‘Add-On’ Trade Strategy:

Place a hypothetical order to buy one September Kansas City wheat contract and simultaneously sell one September Chicago wheat contract on a close above +5 1/4 cents (premium KC wheat).  If filled, risk a two-day close of three cents below the pullback low that precedes the entry (currently at -4 1/4 cents).