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.
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).