Back in June we noted that oil futures were reaching an inflection point as they approached a breakout from a long-term triangle pattern. Turned out to be a very profitable trade.
Then again in July we wrote about a second chance to get on board the oil train, using the oil ETF. That trade made money too.
And now we think there’s another chance to make some money from oil. Here’s how.
Chart: Oil Futures, to Sept. 23, 2013
THE LAST RALLY IS OVER. THE NEXT MAY BE JUST BEGINNING
The initial breakout point for crude futures was a sharp move up from long-term resistance around 98.00-99.75. That move eventually moved past 112.00, which represented thousands of dollars in profits for traders.
That rally is pretty much over, and the drop back below 106.00 confirmed it. The next move we see is a return to retest the breakout level, or at least the support that was established after the break out.
The way the price reacts at those levels will show us the next direction for the crude futures.
The first price level we are watching is 103.40. If that level is broken to the downside, we will be watching the former break-out point around 100.42-99.01.
THE MAJOR TEST
That will be the major test. If the downside movement stops there, we will be expecting a bounce back up past 106.00. If that level is broken, we’ll be looking for a further decline to around 96.00.
If we get to 96.00, it will force us to reconsider the major trend direction. Right now the longer-term trend is up, and we are watching a retracement in the up-trend.
But if the price falls to 96.00 or lower, it may signal that a longer-term downtrend has begun.
One of the indicators that helps us anticipate the next movement is the MACD. At the moment it is telling us that the retracement hasn’t completed yet, and we are still looking for one more push down to create a bullish divergence with the price that will encourage new buyers to enter the market.
Oil prices are always subject to political events; war with Syria or an outbreak of peace with Iran will move prices dramatically.
WATCH PATIENTLY
But there is no need to hurry this trade. We are approaching an important inflection point in oil futures, and we need to watch patiently as the next significant move takes shape.
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Polly Dampier is the brain behind Naturus.com, a subscription service for active traders where she gives members live, real-time market analysis and guidance. Visit www.naturus.com for more information.
