Article / 03 October 2016 at 13:20 GMT

Crude breaks out of its triangle, but watch out for the throwback

Technical Analyst / Saxo Bank
  • Crude oil set for a test of its 2016 high
  • RSI has not dipped below 40 since August
  • Beware 'throwback' move in crude

Crude oil rallied hard after last week's Algiers summit saw an Opec deal materialise
and now appears set for a test of its year-to-date peak. Photo: IStock 

By Kim Cramer Larsson

After the bullish break out of its symmetrical triangle Friday, crude oil is set for a testing of the 2016 high. Currently it is testing resistance at around $49/barrel, i.e. August's peak.
At the time of this writing the RSI is above 60, but even more telling, perhaps, is the fact that the indicator has at no time since August been below 40, indicating bullish sentiment and a positive trend. 

But how far can it move after the breakout? 

As a minimum the price target would be the highest peak in the triangle, so the $51.67/b level from June 2016 (which is also next resistance level if oil can close above $49/b).

However, according to the theory and statistical material on symmetrical triangles it should have potential to reach two-thirds of the difference between its highest peak ($51.67/b) minus its lowest valley ($39.19/b), so $13.65. 

That can be added to the breakout price around $47.75/b, giving us a price target of $61.40/b. That is also roughly a 1.764 Fibonacci projection of the triangle. 

So $60/b sometime in Q4 is on the cards...  

However, beware of a throwback after the breakout. A throwback is where the instrument – in this case oil – gets "thrown" back to test the upper trendline on the upside and sometimes gets thrown all the way back into the triangle. 

The first scenario, where it only tests the upside, should be seen as a positive and an opportunity to enter but a throwback where it gets thrown all the way back into the triangle will put a big question mark on the bullish scenario. 

An indication of when a throwback occurs could be when it RSI reach its upper falling trendline.

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Source: Saxo Bank

— Edited by Michael McKenna

Kim Cramer-Larsson is a technical analyst at Saxo Bank
03 October
Pandorra Pandorra
Kim, you bet it will be first ever champagne cork in 2016yr?
03 October
AndrejLences AndrejLences
Nice article.


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