NEW OIL TARGETS by Daryl Guppy

The behaviour of the oil market has changed dramatically in the last few weeks. Oil has retested the upper level of the trading and consolidation band. The market is establishing a new resistance level and this changes the upside price targets. The NYMEX (New York Mercantile Exchange) Crude Oil weekly chart is the most effective way to observe the impact of these historical trading bands and the nature of the oil trend behaviour.

The lower level of the current trading band is near $58.00. This is an historical support level. The upper level of the current trading band is between $68.00 and $70.00. This is also an historical resistance level. The oil price moved above this level in 2009, June and reached a high near $72.00. This was a temporary breakout. The price fell and retested support near $58.00.



The recent price move to $72.00 shows bullish pressure is retesting the resistance area between $68.00 and $72.00. A retreat from near $72.00 will confirm a new resistance consolidation level between $68.00 and $72.00. The drop below $68.00 may test the lower edge of the long term GMMA. The new resistance level at $72.00 is very important because it effects the upside target calculations.

Currently the next historical resistance level is located near $78.00. The next higher historical resistance level is near $88.00. During 2007 to 2008 the oil trend moved between trading bands. Each trading band was about $10.00 wide. Using the history of support and resistance this gives a new upside target of $78.00 which is $10.00 above the historical resistance level at $68.00. The historical levels are shown in black lines.

The character of the oil market is changing as the new uptrend develops. This change will be confirmed when the new resistance level at $72.00 is also confirmed. In this new environment the price targets change.

If a new resistance level is confirmed near $72.00 then it increases the width of the trading band. The new trading band would use the historical support near $58.00 and the new resistance high level at $72.00. The height of the new band is now $14.00. The behaviour of the trend in oil uses the trading bands to set the next upside target.

A breakout above the new resistance level at $72.00 gives an upside target near $86.00. The next higher target would be at $100.00.

The nature of trend behaviour in the oil market does not change. The trend moves in trading bands. Price consolidates inside the trading band, and then a price breakout develops. The upsides target is calculated using the width of the trading band. The character of the trend behaviour has not changed but the position and width of the new trading bands has changed. This sets higher upside targets when the breakout trend continues.

If we use the historical trading bands it would require three trading band consolidation periods for the oil price to reach $100.00. If we use the new trading consolidation bands it requires only two trading band consolidation periods for the oil price to reach $100.00.

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Article contributed by Private Trader, Market Expert, Trading Coach and Best-Selling Author Mr. Daryl Guppy. For more articles and commentaries from Daryl Guppy, click HERE.