Headed South For the Winter
On September 6th, the IMC blog entered a short position in the Nov-Dec feeder/corn (x4) spread. We sold a November feeder contract short at 126.075 (contract value of $63,037.50) and bought four December corn contracts at $3.28 1/2 (a sum contract value of $65,700), which puts us in the position at a price of -$2,662.50 (premium corn).
Initially, we are going to risk the trade to a two-day close above +$5,500 (premium feeders). That’s nearly $500 above the August 30th contract high.
Bearish Technical Outlook
First of all, a double top pattern was formed between the August 9th high of +$4,962.50 and the August 30th high of $5,012.50. Yesterday’s close below the August 19th low of +$237.50, which is the lowest point between the two highs, confirmed the pattern.
Secondly, the spread closed below the rising 50-day Moving Average for the first time since mid-June.
Next, the nearest-futures spread closed above the widely-watched 200-day Moving Average at the start of August for the first time in a year. This was a bullish event. But here at the start of September, the nearest-futures spread closed back under the 200-day MA. This could indicate that the party is over.
The spread should now be on its return trip to the mid-June low of -$23,650 (premium corn). Based on history, a clean and sustained break of this low should clear the path for a descent to the -$40k area. You can be that we’ll be watching for pyramiding opportunities if the bear market persists.