Originally published by Guppytraders.com
The NYMEX breakout above long term resistance near $54 has caused a ripple of excitement in what has been a largely moribund market for nearly 18 months. Sure there were trading opportunities in the rallies and retreats between $43 and $54 but slow moving volatility doesn’t make for good trading.
The key question is to decide if the breakout his just a temporary rally, or part of a longer term trend breakout. The second question is to set the upside targets.
Oil trades in bands. It doesn’t trade in trends, or at least it hasn’t really done so since 2010. The standout feature on the chart is the strong support level near $43. This is not an exact level, but this area has been tested consistently from 2015 until the most retreat retest in July. Starting 2016 April the oil price has stayed above this support level and moved in a prolonged sideways pattern.
The upper edge of the sideways pattern is near $54. Between 2016 December and 2017 February it acted as a strong resistance level. The rapid breakout is generally considered a strong bullish feature but this breakout has shown no good follow-through.
Support near $43 and resistance near $54 makes the trading band around $11 wide. In the past oil has often trading in trading band around $10 wide. The oil market appears to have re-set this spread, expanding from $10 to $11. This gives the upside projection target for the trading band near $65. This has been an unimportant technical level in the past so traders take a cautious approach to this target level because there is strong historical resistance near $61. Traders watch for consolidation near this level. A strong breakout above $61 changes this rally into a genuine trend break.
We use the ANTSYSS trade method to extract good returns from this rally but it too early to identify this as a trend breakout.. Investors and traders pay particular attention when the price moves above resistance near $54 because a breakout rally could be very powerful and fast moving.
Any pullback and successful retest of $54 as a support level is a buying opportunity on the long side for the development of a longer term uptrend.
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.