The price of WTI has reached $60.74, the highest since Nov. 8, as risk-on returns to market once again. We expect it to rise further, despite concerns over slowing economic expansion.
Note that oil prices have been tracking equities. They bottomed out on Christmas Eve, then rose through the first quarter of 2019. The rally hasn't been uninterrupted though. We can see a series of four price congestions on the technical chart, below, as the uptrend paused amid uncertainty about the outlook for global growth.
Another headwind came from a series of tweets by U.S. President Donald Trump, demanding OPEC+ increase crude supply to combat rising prices. However, while earlier, such tweets weighed heavily on sentiment, more recently investors have come to realize that oil producers’ response to the American president's demands have been muted. As a result, the market has been increasingly disregarding such tweets.
We have monitored the reversal for oil, with its H&S bottom from late-November through mid-December. The current congestion is in the shape of a pennant, a continuation pattern, whose short-term uptrend is part of the outlook for a medium-term reversal, from down to up, with the H&S bottom.
Trading Strategies
Conservative traders should wait for a breakout above the 200 DMA, at $62, with a return move that would find support above the MA.
Moderate traders would wait for an upside breakout of the pennant.
Aggressive traders may go long now, on the upside breakout of the H&S bottom.
Trade Sample
- Entry: $60.50
- Stop-Loss: 58.50
- Risk: $2
- Target: $66.50
- Reward: $6
- Risk-Reward Ratio: 1:3