Crude oil has rallied to gain +15% in six weeks; can the commodity reach $100?

<p>Sandy Jadeja is the Chief Technical Analyst at City Index. With a strong focus on technical’s, chart patterns and statistical analysis. Sandy also provides weekly […]</p>

Sandy Jadeja is the Chief Technical Analyst at City Index. With a strong focus on technical’s, chart patterns and statistical analysis. Sandy also provides weekly educational seminars and market commentary for major financial news channels.

Favorite market quote “The game taught me the game.” Jesse Livermore.

Sandy Jadeja

Sandy Jadeja
Chief Technical Analyst
07/08/2012 (10:00am)

Crude oil has rallied to gain +15% in six weeks; can the commodity reach $100?

Whilst many traders have focused on stock indices, which have had positive gains over the last few weeks, some traders may have missed opportunities in the commodities corner.

Currently Nymex Crude Oil has found support at the $80.80 support level. Oil made a low just above this support target at $81.46 and then proceeded to move upwards. There is a possibility that the current move may be false and very soon turn lower.

What are the concerns from a chartist’s point of view?

If we take a broader view from a weekly perspective there are several factors which we can consider. Let’s take a look at the chart below:

Crude Oil

Firstly we note that a high had been formed at $114.83, followed by a decline to a low at $76.88 between May to October 2011. Thereafter a rally took the price of oil to a high of $111.30 which occurred in five waves.

Typically a market will move in three or five waves. One should remember that this is not always the case but if viewed in a different time frame, the formations can become clearer.

As we can then observe from the high of $111.30 the move to the downside also occurred in five waves to complete a low during June this year.

Now the chart is becoming interesting at the current price level.

Firstly I would point out that the recent low is higher than the previous low at $76.88 but the high of $111.30 is lower than $114.83, which places oil in a decisive position. Next we note that the move from the low of $81.46 has occurred in one straight move. But if we look carefully we can see that the week ending July 27th the commodity made a low at $89.21 and the continued higher. This suggests that we may now be either in a three-wave or an early stage of a five wave move higher.

Crude oil is also approaching its 100 period Moving Average which is where there could be resistance. Also at the same time the price, if it reaches the technical indicator, will coincide with 50% of its previous swing at $96.00

With these factors in mind we may see oil stall at the $96.00 level or alternatively a spike towards $100.00 could take place and then fall back lower again. At this stage we have to wait and see how oil will react at these key price levels and also see what type of pattern formations take place.

There is the opportunity for oil to move past both these levels and reach higher or $106.00 before a pullback takes place. But the important fact is that until oil can move beyond $111.30, the current move appears to be a corrective rally to the upside with longer term bearish momentum.

Let’s see how oil reacts at the resistance levels over the coming weeks

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