Originally published by guppytraders.com
Two weeks ago, we noted that the NYMEX oil price has broken above the initial resistance level near $58 and was heading towards $68. The announcement by President Trump on the unilateral imposition of third-party sanctions on Iran and countries dealing with Iran was widely cited as the cause of a massive jump in oil prices. Just how true is this, and does it mean we can revise the previous price target?
The charts suggest that again this is more a mix of falsehoods and bluster than the truth. It may add a bit of momentum to the rally, but it will not create a new rally. It may add momentum to the existing breakout trend, but it will not create a new trend. The price move cannot be reasonably described as a massive jump.
The substantial trend break was confirmed by the Guppy Multiple Moving Average relationships some six weeks ago. The early signal of a rally developing into a trend came in early January 2019. A continuation of this strong trend is hardly a surprise and hardly a reason for the breathless analysis that tells us prices are going higher. They have been going higher for months.
The uptrend behaviour remains consistent with the historical behaviour of oil and this is a history of moving in trading bands. In the current uptrend the resistance level is near $68. The support level is near $58. The longer-term upside target is near $78 but stronger changes in demand and supply will be required to achieve this target.
The current political moves can quickly push price towards resistance, but they are less likely to push price above resistance. If price already been testing $68 then the political announcements could have pushed price quickly higher towards $78.
The short-term group of averages –Guppy Multiple Moving Average indicator shown in blue - reflects trader activity and remains strongly bullish. They have turned upwards and have developed good separation. The lower edge of the short-term group is equal to the value of the lower edge of the long-term group of averages and confirms that a new uptrend can be sustained.
The long-term group of averages – shown in red – reflect the view of investors. This group of averages has compressed and are beginning to turn upwards. This shows a change in investor confidence.
A future breakout above $68 has an upside target near $78. This trend is confirmed by the rapid compression and then expansion in the long term GMMA. This continues to be traded as a strong rally with a $68 target. This pattern of behaviour has the characteristics of a potential sustained uptrend in this case supported by the recent political decisions. However, the trend was already in place and there is no need to revise the targets.
Daryl Guppy is a leading international financial technical analysis expert and special consultant to Axicorp. Guppy appears regularly on CNBC Asia and is known as "The Chart Man". Disclaimer: Daryl Guppy is not a financial advisor. These notes are for educational purposes only and provide an example of applied technical analysis.