Copper/Crude Oil Spread: Watching For a Reversal

Looking to Reenter

Back on December 1st, the IMC blog entered a short position in the copper/crude oil spread at the equivalent of +$12,870 (premium copper), due to rollovers.

September Copper Crude Oil spread daily

September Copper Crude Oil spread daily

The blog was last holding a May spread.  It was liquidated at the market-on-close on April 20th at +$13,280 (premium copper) because the crude contract was expiring.

We are now stalking the September copper/crude oil spread for a short sale.  The blog did not roll into the September contracts automatically because the spread tested support at the early February low last week and bounced.  The plan is to get into the spread only if it breaks the similar lows from early February and last week.

Copper Crude Oil spread monthly

Copper Crude Oil spread monthly

Currently, it appears that the spread is headed for a test of the contract high that was posted just last month at +$17,882.50.  A breakout to new highs could push it right over the +$20k mark in a heartbeat.  If so, we will revise our short sale criteria.  History shows that this spread has been a good short sale after surpassing the +$20k level.

Trade Strategy:

Place a hypothetical contingency order to sell one September copper contract and simultaneously buy one September crude oil contract if the spread closes below +$10,000 (premium copper).  If filled, liquidate the position on a two-consecutive day close above the contract high that precedes the entry (currently at $17,882.50). 

If the spread closes above +$20,000, change the parameters to enter a short position if the spread closes below +$17,000.  If filled, liquidate the position on a two-consecutive day close above the contract high that precedes the entry. 

 

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