Corn Against Oil: A Pairs Idea

Every trader has been talking about Corn ($ZC_F, $CORN) over the last few weeks, and for good reason it has been on fire. And the last over the last 2 weeks Cruse Oil ($CL_F, $USO) has also been interesting but in a different way. Crude is off over 6% over that period. But the ratio of Corn to Crude might be even more interesting. Take a look at the chart below.

corn v uso

This ratio is breaking over the slight downtrending resistance which has been in control since August. Additionally it is approaching the 200 day Simple Moving Average (SMA). It has not been above the 200 SMA since January 2013. There is support for it to push higher from the bullish RSI and the rising MACD. With the next major resistance at a ratio of 1.14 above it gives a strong trade opportunity.

Buy the ratio on a break over 0.96 with a stop just under the downtrending support line, around 0.93. With the ratio so close to 1 you can do this roughly by buying 100 shares of $CORN for every 100 shares of $USO you short. This gives a reward to risk ratio of 6:1 against a target of 1.14 above.

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