Although the chart pattern suggested October Crude Oil was set up for the start of a substantial correction, the futures contract rebounded quickly after a two-week setback and is now in a position to breakout to the upside on both the weekly and monthly charts.
The weekly chart indicates a breakout over the last top at $107.85 could trigger a fast rally into the April 29, 2011 contract high at $108.63. A trade through the top at $107.85 will also make $101.82 a new main bottom. The market would have to take out this price to turn the main trend down. Otherwise, it looks like upside momentum is going to take this market higher.
The monthly chart also indicates a serious up move is in the making. Last month, a long-term trend line stopped the rally at $108.53. This month, the trend line moves down to $108.03. A sustained move through this angle will be a sign of strength and could fuel an acceleration into another downtrending line at $112.28.
Fundamentally, after weakness earlier in the week, crude oil reversed sharply to the upside. Speculator liquidation caused the early decline. These traders were anticipating a rise in the U.S. Dollar on speculation the Fed would announce the date and the amount of its tapering of monetary stimulus. This action would’ve increased U.S. interest rates, making the U.S. Dollar a more attractive investment. Since crude oil is dollar-denominated, crude oil prices were expected to collapse from lower demand.…