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It's Time For A Technical Oil Trade

Regular readers will know, as will anyone that has ever attended one of my instructional courses, that I very rarely arrive at a trade idea just by looking at a chart. Rather, I prefer to arrive at an idea in a “top down” style, starting with a big picture view of the global economy, then deciding which energy commodity or stocks will be most impacted. Only then do I look at charts, to find things that are poised to break out of a pattern and to find logical exit points for the position I am looking to put on.

Sometimes, though, even a market that is really about fundamentals is in balance, and then technical levels and patterns take on much greater importance. That is the case right now with crude. A look at the chart for WTI futures (CL) below shows a narrowing wedge, which indicates the kind of balance I am talking about, but a simple Elliott Wave analysis suggests that the next move of a couple of dollars or so in price will be quite significant.

There are two ways of looking at the waves marked by the gold arrows.

The first is that we are just entering wave three of a large bearish pattern. If that is the case, then we can expect oil to head significantly lower over the next few weeks as that wave develops and crude drops below the channel support at around $72. If, on the other hand, you treat the first gold arrow as just a range-setting move, then we are currently in the second, correctional wave of a new bullish pattern. If that…

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EXXON Mobil -0.35
Open57.81 Trading Vol.6.96M Previous Vol.241.7B
BUY 57.15
Sell 57.00
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