Monday  19 October 2009

Every once and a while, there is a “Perfect Storm” formation of a breakout
pattern across the various time frames, as we showed in the previous article,
Crude Oil – Major Breakout Potential, from the larger Quarterly time frame
down to the daily.  The weekly chart, below, shows precisely how the rally
through the previous trading range triggered the up move, which has more
to go.

Once crude bottomed, starting December 2008, it formed a broad trading
range with 23 March as the high and a very small range that caused price to
retreat for the next five weeks.  This chart is replete with so many technical
observations.  The small weekly range just mention is typically a red flag. 
Buyers were unable to keep control, and sellers were present to prevent price
from extending higher.  That is what set the stage for the next five week
decline.

The week of 4 May was a breakout of that broader bottoming trading range
formation that extended the next rally to the week of 22 June highs, thus
forming the trading current trading range of the past 20 weeks.  Note the low
of the range made in early July, 58.32.  This tells us two more important pieces
of market information. 

One, the May-through-October trading range just completed formed on top
of the broader December-through-May bottoming trading range.  Anytime you
see on trading range form on top of another, it is a bullish read of the market
actiivty.

Two, the low of the higher trading range, 58.32, is above the high of the
preceding trading range, 54.66.  This is called bullish spacing, a gap of sorts
that is also a sign of strength.  All of this previous market behavior has been
stage-setting for the pluperfect breakout of Crude last week, and it reveals why
price ran up so quickly, once the resistance highs were exceeded.  The second
chart has been marked to show the areas just mentioned.

Two other areas have been added.  93.00 was the last rally high before price
sold off, breaking the low established two weeks earlier.  That will now act as
an area of resistance.  The dotted line represents the half way mark from 2008
high, [147.27] to low, [32.40], also a potential area of resistance.  Combined,
that area is the target where Crude could stall, 90 – 93 area.

 A chart count points to the $100+ level as the next higher price objective. 
Again, we do not know if these levels will be attained, but given the market
activity as described, the developing behavior patterns surely suggest increased
probabilty that higher prices are to be expected.

We recommended long positions from 95.64, indicated on the second chart,
and we remain long.  There may be additional places for adding to the position,
and we await more developing market activity to tell us where and when.

Chart 1

 CLZ W 16 Oct 09

Chart 2

CLZ W 19 Oct 09