1/7/2012 OIL

NYMEX WTI Crude Oil

In the weekly chart, I don’t see any significant pattern forming. I tried to draw an up-trending channel (the grey lines) to find the places where price should reverse, but, as I highlighted, the pattern is busted and the up channel is not a good signal. Then I saw a ranged channel in 2010, where oil price was traded well within the $69.48 – $87.45 range for most of the year until it broke the top channel in Dec 2010 bringing the oil price to a 3 years high @ $114.83. In mid-2011, same area where the busted uptrend was highlighted, oil price made a double bottom @ $75 area. So far this $114.83 - $75 range is still legit; as a long term trade, I think you can use this range to determine when to get in a position as we move onto 2012.     

In the daily chart, you can see the double bottom more clearly, it formed a “W” pattern where I highlighted. Once the 4^th up leg broke the peak in the middle of the “W”, a double bottom is confirmed and you should expect price to go back to where the 1^st leg started to drop. In this chart, I think the run for the double bottom was finished when it first reached the resistance level @ $103.38.

As price exhausted out of the double bottom pattern, another pattern emerged right away. The highlighted area indicated a Right Angle Boardening Formation-Descending (RABFD) pattern, which the formation consists the resistance line @ 103.38 and the bolded yellow downtrend line. According to my experience, more than half of the RABFDs I have seen are bullish, therefore I’m guessing oil price will break to the upside in the near future. Furthermore, I lined up the last 2 valleys on the chart in green dot line spotting an uptrend move. In this case, I will wait until the price bar to close above the resistance and open above it in the following next bar before I take on a position. My target will be the 3 year high @ $114.83 and my risk is the uptrend line; I will get out if a price bar closes below the trend line and the next one opens below it. If you want to be a bit more aggressive, you can push your risk to the support line @ $95.

I hope this post gives you some insight. Thank you for reading and please feel free to give me some feedback. Next post I'm going to talk about the S&P 500 chart.