The Next Big Move In Crude Oil
WTI Crude Oil on the Move, $112 Next Stop
The energy sector has surged during the last two months, which can be seen by looking at the (XLE) Energy Select Sector Fund . If crude oil continues to climb to the $112 level, XLE will likely continue to rally for another few days or possibly week as energy stocks are considered a leveraged way to play energy price movements.
Another way to look at this info is through the (USO) United States Oil Fund. This tracks much closer to the price of oil. The only issue is that many ETFs that "try to track" an underlying commodity is in how the funds are built. They own multiple contracts further into the future, which sometimes does not exactly provide us with the short term news/event driven price movements in the current front month contract as they should.
What does this mumbo jumbo mean? Well, it means funds like USO and the highly respected (UNG), and VIX ETF (VXX) ... (just joking about the highly respected part), can sometimes fail to track the underlying commodity or index very well when it comes to short term price movements. This means, you can nail the timing of a trade, and the commodity or index will move in your favor, yet your ETF doesn't move the same amount ...
Let's Focus on the Technicals Now...
WTI (West Texas Intermediate) crude oil has formed a bullish ascending triangle pattern from March to May of this year. The breakout to the upside is bullish and should be traded that way until the chart says otherwise. This breakout and first pullback must hold, or I will consider it a failed breakout. So if price dips and closes 2 days below the breakout level, it will be a major negative for oil in my opinion.
Crude Oil Futures Chart
The range of the ascending triangle provides us with a measured move to the upside which is $112. Typically the first pullback after a breakout can be bought. The first short term target to scalp some gains would be $109, and at that point moving your stop to breakeven is a wise decision. Trading is all about managing capital and risk, if you don't, then the market will take advantage of your lack in discipline.
Looking further back on the chart, you can see the double bottom formation also known as a "W" formation. Once the high of the "W" formation is broken the trend should be considered neutral or up.
Also note that the RSI (relative strength) has been trending higher for some time now. This means money is rotating into this commodity. This is in line with my recent viewpoint and those of other analysts I speak with.
Crude Oil Trading Conclusion:
In short, oil has some extra risk around it. The recent move has been partly fueled by news overseas. So at any time oil could get a lift or take a hit by news that hits the wires. I tent to trade news related events with much less capital than I normally do because of this risk.
Courtesy of TheGoldAndOilGuy.com