Light Sweet Crude Oil Future (/CL)
Since we stepped into 2012, the oil price has been trading down steadily but it is still sitting well within the range @ $95.1 - $103.38. Although the Right Angle Broadening Formation-Descending (RABFD) pattern from last oil post is still valid, it hardly provides any signal considering the recent price movement. Even if price breaks to the upside later on, the breakout can’t be counted as a RABFD pattern breakout since the pattern is incomplete. As a side note, price also broke the uptrend line (green dots) I previously drew but you can see the uptrend line provided some support before price cut below it.
In the hourly chart, you get a better picture of the downward channel. Price touched each side of the channel for at least 3 times already, I'm suspecting a break off from the channel is happening soon, most likely to the upside. If you pay attention to recent news in the Middle East, you will notice fear is mounting on the possibility of the Israel-Iran War. The war may not cause any immediate shortage of oil, but the news is going to be a catalyst to the upward breakout move. From the technical perspective, I think the move is on the upside because of the strength of the underlying support levels @ $95.1 and $96. This may be a bit hard to see on the chart, but, if you can bring up the chart, you will find most of the drops were relatively sharp, the entire move completed in a few price bars and left a long tail at the bottom of the red bars. Those tails gives me a little hint about how other market participants are reacting to the price move. The long tails indicate that buying interest in the market was still substantial, providing support in the mid $90s area. Besides, the range bottom @ $95.1 should give a firm ground for oil price to stay above. I also see a double bottoms formed around the 30 day low area. Despite the fact that the run is already exhausted, the 2 valleys of the “W” pattern can use as a support level, which is at $96. The confirmation line, which is the tip of the middle peak, is another usable support/resistance level, I set the level at $97.84.
If oil price breaks out on the upside, use the preceding peaks as target levels @ $101.3, $102.24 and $102.98 or the range top @ $103.38 depending on how much risk and reward you want to take. Of course, the more profit you want to take, the more risk the move will inhere. I personally would suggest using the trailing stop method (see 1/19/2012 XLF post for more detail) for profit taking because it can lock in profit while not scarifying the potential of more upside gain. In terms of risk, the confirmation line @ 97.84 should be a decent risk level since price bounced off this level for 4 times in the last 30 days. However, for the same reason, if it goes back to that level again, the chance of the level will hold may diminish because other market participants may see it as an “old” level and less players will participate in it. I like to set my risk at support level @ $96 better, but you should make your own decision whether you want to take the confirmation line as a risk level. On the other hand, if price doesn’t break to the upside, I expect price action to enter a congestion period. Before the market decides where it wants to go, it will probably use the confirmation level as a center line and flips around it. If this is the case, use the support level @ $96 as risk level and don’t let price goes anywhere below the support level @ $95.1. The $95.1 level is an important gauge for the range, if price breaks the level to the down side, a sell off is very likely to follow.
On the 15 minutes chart, oil price developed into a double tops pattern in the last 3 days. The pattern was confirmed when price drop through the confirmation level @ $98.23. However, the performance of the breakout run fell short and reversed soon after the pattern was confirmed. Nevertheless, I add 2 more levels in this chart for short term swing trade. I am pretty sure oil price is going to test the double tops’ peak level @ $100.1 again. The only question is where will it go afterward? If price continues to go up after reaching the double tops’ peak level, use the same strategy I laid out in the last 2 paragraphs. If it reversed upon reaching the level, then it should develop into a triple tops pattern. In this case, expect price drops down to the double tops confirmation line @ $98.23 and wait for the downside run when the pattern is confirmed.
I hope this post offers you some insight, thank you for reading and please feel free to give me some feedback.
No comments:
Post a Comment