Originally published by Guppytraders.com
Take your pick - $52, $75, $82.50 or $100? The outlook for oil seems particularly confused with some analysis calling for a fall whilst others have wildly optimistic targets near $100. All prices are possible, but some are more probable than others.
All of the fundamental analysis, all of the variables around shale oil production, middle east troubled and increasing Chinese demand are assessed, balanced, and summarised daily in the price chart which records the price actually paid for oil. Assemble these days or weeks in a single chart and clear trends and behaviours emerge. These features provide an answer to the most probable, and the least probable outcomes for the oil price.
The weekly chart shows that oil trades in bands. The standout feature on the chart is the strong support level near $43. 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 has shown good follow-through and developed into an uptrend.
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 which was achieved in late January.
Trading bands have two important features. The first feature is the way price consolidates near the upper and lower edge of the trading band. It is rare for a rising price to quickly move above the trading band projection level.
The second feature is the way price develops rally and retreat behaviour between the upper and lower edges of the trading band. This can prevail for a brief period, or for many months. The current trading band breakout and retreat is moving toward the value of the uptrend line that started in 2017 July. Investors watch for a rebound from this trend line value and a retest of the trading resistance level near $65.
We started by asking you to pick one of the four price targets. The chart analysis shows none of these numbers are consistent with trading band analysis. The next upside target is $76. This is calculated by taking the width of the trading band and projecting it upwards. This analysis method uses the repeated historical behaviour of the oil price.
We use the ANTSYSS trade method to extract good returns from this trend breakout and the rally rebounds. Any pullback and successful retest of the trendline support value near $58 is a buying opportunity on the long side for the continuation of the 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.