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.

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s