Oil Price Analysis by Daryl Guppy

Oil has developed a trading and conciliation band behaviour. This is clearly observed on the NYMEX (New York Mercantile Exchange) Crude Oil weekly chart. The width of the band is now defined by the resistance level that developed near $53.00. This is a little distance below the historical resistance level near $56.00. The lower edge of the trading band is near $33.00.

Towards the end of 2000 oil developed an equilateral triangle pattern. This is a pattern of indecision. The breakout from this pattern has a 50% probability of moving up or down. The important development of this pattern has been the price behaviour in relation to the middle point of this pattern. The middle point or apex, of this triangle pattern is located near $42.00.

The breakout from this equilateral triangle was not very successful and resistance developed near $53.00. The way the market retreats after the breakout gives a good indication of how this long term trend will develop.

It is a bullish condition when the market retreats to $42.00 and finds good support. A rebound from this support level has a high probability of successfully testing resistance near $56.00. A very strong rebound has the ability to move higher and retest resistance near $70.00.
If support near $42.00 is not successful then the market will fall to retest support near $33.00. This is a bearish outcome and suggests that oil will continue to trade inside the trading band for many months. This would develop a long term consolidation pattern between $33.00 and $56.00.

The price move from $33.00 to $42.00, or higher to $56.00 gives many profitable trading opportunities. It is important to remember this is part of the normal pattern of rally and retreat behaviour inside a trading band. Price can fall very quickly from resistance near $56.00.

A long term change in the trend will develop when the price is able to move above resistance near $56.00. This is currently a low probability because the value of the long term Guppy Multiple Moving Average indicator on the weekly chart is near $56.00. This shows a strong resistance level. On the daily chart the long term GMMA shows the uptrend pressure is weak.

For the next several months oil may continue to trade in the upper area of the trading band between $42.00 and $56.00 but there is a low probability the price will successfully move above $56.00. Price may fall below $42.00 but there is a reduced probability the price will continue to fall all the way to $33.00 so traders will be ready for a price rebound to develop.



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Daryl Guppy, well-known international financial technical analysis expert. Appears regularly on CNBCAsia and is known as "The Chart Man". He is an equity and derivatives trader and author of books including Share Trading, Trend Trading and The 36 Strategies of The Chinese For Financial Traders. He has developed several leading technical indicators used by investors in many markets. His weekly analysis newsletters get favorable comment in Asia and Australia.