This is a sample entry from John Payne’s newsletter, This Week in Grain, published on Wednesday, April 2, 2014.
Sometimes, when I am looking at a market technically, checking out contracts alone can be a bit blinding. The big moves, exaggerated by high frequency trading and speculative froth can be a bit misleading. Sometimes, we need to look deep into the market structure to see what we can find.
After looking through a lot of different charts, I came across the July 14-Dec 14-July 14 butterfly spread. Do you notice its leading factors? I certainly do.
Long July 14-Short Dec 14(X2)+July 15 Corn = Our butterfly spread price
Now, let’s combine them and see if there is anything we notice…
I notice that this spread has been incredible as a leading indicator. No, it’s not an exact match but the change in trend of the butterfly spread has led corn out of its last top (2012) and bottom (2013). I also notice how the spread is much more orderly, not over reacting to weather events or reports. Its trend held the entire way down, and has held the entire way during the last 2.5 months. While it’s not perfect, it is something I will definitely be following thought the spring. Hopefully, it will help keep my emotions in check and keep me away from the whipsaw. Those who wish to buy corn, may be better off in the spread as it has been offering less volatility.
For more information on butterfly spreads, check out this informative article: Futures Spread Techniques: Butterfly Futures Spread
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This Week In Grain - This Week in Grain (T.W.I.G.) is a weekly grain and oilseed commentary newsletter designed to keep grain market participants on the cutting edge, so they can hedge or speculate with more confidence and precision.
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