US Oil on an Up-trend

Published On: 18 October 2021, 10:05 AM | Jeraldine Tan, Senior Dealer    
  • US Oil has been in a bull run since the end of August where OPEC decided to not produce much more than they were already producing. With countries recovering from the aftermath of Covid-19 coupled with the expected inflation from quantitative easing, it is no wonder that oil prices have continued to rally. US Oil has formed an upward channel and have traded within its boundaries since mid-September and obeyed the top and bottom channel lines quite well. It has now however seen less directional movement with smaller ranged bars and more dojis, signalling some form of price agreement between bears and bulls.
  • Bears will want to see a break below the blue line i.e. most recent wedge which could also be seen as a double top break (currently forming) below the wedge as a first signal. Second signal would be a break below the potential double top neckline, and a third and stronger signal would be a break below the bottom channel line for a short. As probability of success goes higher with each signal, the reward/risk also reduces. Hence bears can consider scaling in. Bears can also look out for fundamental catalysts such as OPEC extensions and increased production / low China demand / US rate hikes.
  • Bulls could await a pullback to the bottom channel line to get a better reward/risk trade towards the upside. Assuming no new developments in the oil fundamentals, based on previous price action it does not seem likely for prices to breakout strongly unless a strong catalyst (OPEC cuts / exceptional macro figures from Covid-19 recovery) shows itself. Hence it might be more prudent to enter with-trend on a pullback to a reasonable level.
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