WTIC crude oil has been in a fairly long termed triangular consolidation pattern. Take a look at the chart above. A breakout through about $107 would be bullish for crude, and a breakdown through the lower end of the triangle – around $92, would be a bearish sign.
Within the triangle, we’ve seen crude moving up lately. The shorter termed (daily) chart below tells us a few things about WTIC right now. First, we can see the near termed resistance that I’ve marked on the chart at around $105/barrel. We can also see the near-termed and mid-termed trading signals from stochastics and RSI are approaching overbought levels, but have not rounded over at this point.
Our slow moving momentum indicator, MACD, is quite healthy – having just crossed over bullishly. Comparative strength to the stock market, shown in the middle lower pane, is picking up – a bullish sign. The cumulative moneyflow indicator (Accumulation/Distribution, bottom pane) is moving up, while the moneyflow oscillator (top pane) is also moving up from a bearish position. On the negative side–Seasonality for energy ends in May.
My approach to this trade is to wait for confirmation through $107 before going long, or to wait for a pullback (so long as it doesn’t break below $92) from the currently minor overbought levels. Weaker seasonal patterns and overbought momentum may delay the upside potential for oil for a while. If you hold energy or energy stocks, the charts suggest that you can stay long (we still hold a small allocation to energy), but I wouldn’t add to positions at this time. The safer bet is to wait until the next seasonal buying window, which occurs at the end of July. If the charts still look favorable and present an entry point, we may add more energy to our holdings.
Keith on BNN television’s MarketCall Tonight: Tomorrow (Tuesday May 27th) at 6:00pm
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