The price of crude oil may seem to be trading randomly, even oblivious to world events that normally would have affected it dramatically, but when viewed on a daily price chart using simple support and resistance lines, there is some structure.
A two-year daily price chart of Light Crude Oil $WTIC shows it trading for most of 2016 in a wide rising-triangle pattern below resistance in the $52.00 area. Later that year, it broke above resistance but immediately began trading in a smaller fractal version of a larger pattern but was unable to advance past the $55.00 level.
The smaller triangle-uptrend line was broken in February this year, and the commodity began moving lower in a declining channel pattern. The red lines on the chart delineate 32-period cycle highs, and the green lines mark 28-period cycle lows. If the cycle pattern repeats, crude oil should be making another low and would be expected to return back up to the channel resistance line in the $50.00 area over the next three weeks. The way to play a potential bounce is with the big integrated oil company Chevron (CVX) , which has broken above long-term resistance on its daily chart and formed a bullish candle pattern.
Shares of Chevron have been trending lower this year and moved back down to the 62% retracement level of its September 2016 low and December high. This month they broke back above the downtrend line, the 200-day moving average, and 50% retracement level.
Last week, a morningstar reversal pattern formed above this reinforced resistance-turned-support and just below the 38% retracement level. A morningstar pattern is a three-period bullish reversal that consists of a large dark candle, followed by a narrow opening and closing range doji candle, and completed by a large white candle. It suggests that trader sentiment has transitioned from bearishness to bullishness and that the stock is ready to reverse its previous direction.
Daily moving average convergence/divergence is overlaid on a weekly histogram of the oscillator and is tracking higher and above the centerline on both timeframes. The accumulation/distribution line has crossed above a downtrend line of its own, and Chaikin money flow is well into positive territory. These are signs of renewed bullish price momentum and buying interest.
Chevron is a long candidate at its current level using a position size it accommodates an initial stop under the 200-day moving average.
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