Oil: Technical Analysis
June 29th, 2008WARNING: This is not a recommendation to buy, sell or hold any financial instrument.
Summary (In English): The oil price uptrend looks set to continue, with short term pullbacks along the way.
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I made large charts this time:
Oil has settled into a healthy (roughly 45 degree), uptrending channel. After consolidating into a messy bullish triangle last week, a breakout to fresh highs occurred. Chasing this triangle breakout long could be asking for trouble, short term. A better idea might be to wait to re-enter long on a lower stochastic cross, nearer the multiple support zone (shaded green on the daily chart).
Daily and weekly oscillators are extreme (overbought). A short term correction is due. Taking new long positions on extreme high band oscillators isn’t recommended.
Opportunities for short are limited and suggested for experts on an intraday basis only. Aggressive traders will work the short side off of pullbacks from the upper Bollinger band and crosses below the 20EMA on the faster intervals.
The longer that daily and weekly oscillators stay extreme, the more sense it makes to try short, but this is for traders with many notches in their pistol grips. (This is the opposite of trying to catch a falling knife.) In markets like this, the countertrend down cranks are there to shake longs out right before prices move violently higher. If you want to try for a Black Swan play short, buy some very cheap, deep out of the money put options right here. That’s a sensible move, especially if you’re holding oil for the long term.
The weekly chart shows remarkable and sustained strength. We have not seen a candle body close under the 20EMA in months. In other words, it just keeps working itself higher between the 20EMA and the upper Bollinger band. This is a textbook, strong bull run. (Contrarians lick their chops when that upper band gets tapped higher for so long.)
It’s not pictured on the weekly, but I also added a parabolic SAR and it’s unbroken bullish since February.
This move needs to consolidate to find a new level to base.
Just because it looks overbought doesn’t mean that it can’t crank higher. It absolutely can. As a rule, however, high band entries tend to result in pain.
