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Article / 09 August 2016 at 10:12 GMT

Oil bullish? That's what the chart's suggesting

Technical Analyst / FuturesTechs
United Kingdom
  • Oil pullback may have ended
  • Fundamentals fans are skewed bearish
  • Charts usually win when fundamentals disagree
 Oil was tipped to sink to $20 earlier this year, but this didn't happen. Pic: iStock

By Clive Lambert

I was away for two weeks and returned yesterday. My job is to look at charts, and one of the things that grabbed me yesterday was the recovery in oil prices seen last week.

One thing I did say to clients yesterday was that this pullback had actually gone "deeper" than I expected. But the key word in that last sentence is "pullback" as this is what this appears to be, and it may have ended.

Another thing I’d say is that upon my return everything I've read from the "fundamental brigade" on oil markets seems to be talking the bear skew. To be honest I'm absolutely fine with this. If the charts say something different to the fundamental consensus the charts usually win. Just think back to earlier in the year when oil was going to $20... Except it didn't!

So let’s stick to what I (allegedly!) do best and take a look at the charts, and see what they say about the potential future direction for the Brent and WTI contracts.

Last Tuesday and Wednesday Brent was nudging $41.50, but a strong recovery since has seen downtrend resistance broken and now we’re testing a key Fibonacci resistance at $45.82.
A move above $45.82 is likely to trigger further short covering/buying, the next target being $48.50 before we’re thinking about levels like $50.50, $51.50 and $52.80.

A look at the weekly hints that the recent pullback might just be forming the right shoulder of a Head and Shoulders bottom but this scenario is a while away from being something to get too excited about as the neckline (the level that would need to break to give a buy signal) is up at $52.50 at present.

Chart 1: Daily Candlestick – Brent Crude (front month continuation)

Brent Daily

Chart 2: Weekly Candlestick – Brent Crude (front month continuation)

Brent Weekly
The WTI chart is also nicely of the bottom from last week. We posted a “Hammer” reversal last week and today we’re trying to sustain a bid above the channel resistance line you can see on the daily chart. This is at $42.63 today and it’s the bulls’ mission to keep us above here today so we can gun for $44.00 then $47.00. It’s so far so good on this front but the day is young. 

As with the Brent chart the bigger picture weekly chart is also hinting at a possible H&S bottom formation, but as with Brent we’re a while away from this being a reality and one should always guard against getting carried away with these ideas before the signal is given. The neckline on this chart is right up at $51.86.

Chart 3: Daily Candlestick – WTI (US) Crude (front month continuation)

WTI Daily

Chart 4: Weekly Candlestick – WTI (US) Crude (front month continuation)

WTI Weekly
– Edited by Clare MacCarthy
Clive Lambert is chief technical analyst at FuturesTechs
Clive Lambert - FuturesTechs Clive Lambert - FuturesTechs
43.50 is an important support for Brent Crude and has held this morning. Looking to see if we get a "proper" reaction now.
Clive Lambert - FuturesTechs Clive Lambert - FuturesTechs
We have seen continued upside in Oil markets since I wrote this and Brent Crude has now hit that 48.50 target.
Clive Lambert - FuturesTechs Clive Lambert - FuturesTechs
WTI has hit the 44.00 target suggested and is now gunning for the next upside target at 47.00.
All looking good for the bulls with little sign of sellers returning for now.


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