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Crude Oil At Top of Bullish Falling Wedge

USO (crude oil ETP) is now trading at the top of the bullish falling wedge pattern on the daily time frame with bullish divergences confirming that an upside breakout is likely to occur in the near-future.

USO daily Feb 25th

USO daily Feb 25th

 

The string of 120-minute charts below show CL (crude oil futures), starting with the first chart that was posted in the trading room shortly after the equity markets opened yesterday, highlighting a move down to key support which offered an objective long entry. The next chart, posted later in the day, highlighted the impulsive move off that support level, stating that a continued move higher up to at least the blue downtrend line was likely. That downtrend line on CL coincided with the downtrend line that defined the top of the bullish falling wedge pattern on the USO daily chart posted above.

As the initial tag of resistance from below often produces a reaction, I favor at least a minor pullback (with a 'minor' pullback already occurring as I rush to get this out). Hard to say how much more, if any, the pullback will be but I will say that the next solid break, especially with a 120-minute to daily close above those trendlines, will likely be the catalyst for a move up to any of the first three horizontal resistance levels shown on the USO chart above. The recent string of CL 120-minute charts are shown below above with the updated chart.

 

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Feb 25, 2016 2:49pm|Categories: Gold & Commodities|Tags: , |6 Comments

6 Comments

  1. rsotc February 25, 2016 2:56 pm at 2:56 pm

    Some here have commented on the recent positive correlation between crude prices & the stock market recently. Funny how historically, rising oil prices were bearish for equities and now, in this CB distorted market, stocks are rallying when crude rallies and selling off when oil falls.
    Assuming that relationship continues, taking in my comments on CL & USO likely pullback back off this recent rip right into those downtrend lines, one would expect to see equities follow suit and so far, that is exactly what has happened with the top in CL & USO so far today coinciding with the top in equities. Now if we can just determine exactly where this pullback in crude will reverse…. 😉

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    • rsotc February 25, 2016 2:59 pm at 2:59 pm

      One very tight correlation that has come completely undone since Wednesday of last week is the inverse correlation between equities and GLD/GDX. I started working on a chart to show recent history between the two as well as the ensuing mean reversion that followed any disconnects but I have a few other things on my plate today so maybe later. Bottom line is that the longer that disconnect continues, the more powerful the reversion to the mean is likely to be.

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  2. irawood February 25, 2016 3:21 pm at 3:21 pm

    I am thinking of buying some gasoline, UGA. There is a divergence on weekly chart plus Randy’s analysis of oil would tend to make me think it would be a good time to buy. I would also be comfortable buying the amount of gasoline, in dollars, that I will use in the next 5 years at this price. Even if it goes lower I would still be ok with buying my gasoline for $ 1.60/ gallon for the next 5 years.

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  3. Shambo February 25, 2016 3:25 pm at 3:25 pm

    I started a UGA position last week. Have traded it a few times this year.

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  4. rsotc February 25, 2016 3:38 pm at 3:38 pm

    @irawood Agreed. UGA chart looks very nice with strong divergence (confirmed) that shows well on both the daily & weekly time frames. Here’s my daily chart along with the salient technical levels/targets. Might join you & add it as an official trade idea. G-luck & thx for highlighting it.

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  5. jc March 3, 2016 1:31 am at 1:31 am

    whats your take on crude now? would you look to short it around $10.. bad news doesnt seem to affect it anymore.. maybe up move has more to go?

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