The NYMEX oil price is running into two strong resistance features that limit the upside in the short term. The first resistance feature is historical behaviour. The second resistance feature is the trend behaviour.
Oil has a consistent history of trading in trading bands. These bands form support levels in a falling market and resistance levels in a rising market. In the current uptrend the resistance level is near $58. The support level is near $48 and the upside target for any breakout is near $68.
The oil price is currently consolidating just under the resistance level near $58. A breakout above this level faces a second resistance feature which is created by the activity of investors.
The Guppy Multiple Moving Average (GMMA) indicator is used to understand the activity of traders and investors in the market. The short-term group of averages – shown in blue - reflects trader activity. This is currently bullish. The short-term group of averages have compressed and turned upwards. This shows increasing trader confidence that a new uptrend can develop.
The long-term group of averages – shown in red – reflect the view of investors. This group of averages remains in a downtrend and has a reasonable degree of separation. This indicates that investors are not convinced about the chances of a trend change. If they were convinced, then the long term GMMA would show signs of compression and also turn upwards.
The current long term GMMA behaviour suggests that investors remain sellers in this market. They will not join the trader’s bandwagon and push prices higher. As price approaches the historical resistance level near $58 then investors will come into the market as sellers and trigger either consolidation near $58 or a price retreat.
A successful breakout above $58 has an upside target near $68. This trend breakout will be confirmed by a rapid compression in the long term GMMA .
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.