Oil: more gains ahead?

 

I’ve noted th giant triangle formation on WTI oil – as seen on the chart below- on this blog in the past. The triangle looks to be breaking to the upside at this time. But we’ll want to see more confirmation of that breakout before getting too excited. Look what happened in mid-2013 (right around this time), where oil popped out of the triangle, peaked at $112, then fell back to $92 again. Quite a bit of technical resistance comes in on oil in and around that $110 – $115 zone.

 

oil

 

Let’s take a look to see if we can identify whether oil is on its way to a true breakout, or if it may once again stage a false breakout, just as it did last year. We’ll turn to a chart with my favorite indicators for some clues.The daily chart below has notations surrounding oil’s false breakout in the summer of 2013 along with notations on oil’s most recent price action. I’ll walk you through them.

 

oil short

  • The very top and very bottom panes display moneyflow. In simple terms, moneyflow shows us a calculation of volume x price movement either up or down. Up movement x volume moves the line up, while down movement x volume moves it down. The Chalkin Moneyflow at the top is an oscillator that’s meant to show us near termed moves, whereas the Accum/Dist cumulative line on the bottom of the page gives us a bigger picture of moneyflow trends. In mid 2013, both of these oscillators fell as the market fell, confirming that money was indeed leaving the table. That’s not happening right now – money is still pouring into oil—a bullish sign.
  • Stochastics, which is a fast moving momentum oscillator, diverged downwards while oil made its new highs in 2013. The same thing is happening right now. This is a warning sign. However, RSI, which also diverged in 2013, is clearly bullish right now, and so is the longer oscillator MACD. That suggests a potential near termed pullback on oil, but there’s no signs of serious divergence or reversal in momentum on the intermediate termed oscillators.
  • Comparative relative strength (CRS) vs. the S&P 500 stock index was strong in 2013, but sharply reversed itself and crossed its 20 day MA. Interestingly comparative strength of oil vs. the S&P 500 has been flat of late. You’re no better off in oil than in the S&P500  lately.
  • WTI crude is above its key 50 and 200 day MA’s – this is bullish.

 

All in, the WTI chart remains positive for oil. I’d look for a potential near termed correction based on the stochastics signal, but the other signs remain positive. The real test will be in the $110 – $115 target zone. A break through 2011’s highs of $115 would be quite significant. Seasonal forces (which are out of favor at this time of the year for energy) are going to be battling political tensions surrounding the Middle East and Russia. I expect that we will see the summer rally continue for oil. Whether that rally breaks the $115 price point will be the question.

2 Comments

  • The weekly chart for BNO (Brent crude oil fund) looks like a good breakout candidate with a tight stop placement.

    Reply
    • Good point Dave–better looking chart than the WTI chart–and you can play it, as you say, via the BNO closed ended fund on the US market

      Reply

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