Higher – High And ABC Breakout Pattern In UK Oil – Start Of Uptrend Or False Breakout?
Published On: 8 November 2022, 9:25 AM | Jeraldine Tan, Senior Dealer
UK Oil was in a downtrend since June this year as the bullish effect of the Russian war and sanctions started to dampen with oil flows redirecting and rebalancing.
In early-October, UK Oil broke above the down-trend line signalling a change in market sentiment. However, it still formed a lower high, meaning market was still in a downtrend mode.
Mid-October, UK Oil found a low which we now see is a higher-low. This adds further confirmation that the downtrend is likely ending to begin a ranging / uptrend mode.
This Friday, UK Oil had moved up from the higher-low and tested the most recent high. It broke above. A higher-high is formed and the downtrend has most likely ended. The strength and momentum was on the back of news (or rumours) that China could start to reopen come March 2023 although this was denied by Chinese government. This overshadowed the deflationary effect from the most recent rate hike by the Feds.
Bulls who buy into the Chinese recovery story may start to enter into a position here since price broke above the previous high forming an ABC breakout pattern. Bulls can also wait for more follow through (perhaps followed by a smaller ABC breakout pattern) before determining it is an uptrend to have a higher probability trade.
Bears who think that recessionary pressure would outweigh any potential recovery could see this as a false breakout before a trend continuation to test the trend low. In this case bears may wait for a strong reversal back below the breakout level and initiate a short for a range trade.
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