Charting and Stepping Inside The Crude Oil Price Breakout (USO, CVX, XOM, VLO, BP, COP, XLE)
Corey Rosenbloom: Though it’s been mentioned frequently on the news, the recent crude oil price breakthrough has been impressive on the charts as well.
Let’s take a look at the current structure of Crude Oil and pay special attention to the breakout from consolidation/resistance, as well as the current “Open Air” pocket to watch.
Here’s the Daily Chart Structure:
I wanted to highlight the main points of the chart, including two trades that developed for aggressive traders.
First, Oil struggled against the $103 overhead resistance level and formed a clear sideways trading range (Rectangle Price Pattern) between $95.00 and $102.50 as labeled above.
This allowed an opportunity to play a “Support Bounce” (including the 200d SMA) from $95.00 as February began.
The initial target for a “Range Play off Support” is always the top of the range or resistance – in this case near $102.50.
When price broke firmly above the $102.50 line and began trading even higher than that this week – particularly on the break and close bar on February 17th – it triggered a Breakout trade.
That breakout trade is still in motion, though there’s no clean/easy entry after the initial breakout (per breakout trading logic).
Here’s the Pure Price Chart to highlight the current “Open Air Pocket:”
The $102.50/$103.00 area was important as it provided prior areas of resistance from mid-2011 to present – particularly from May/June.
The firm breakout and continuation move higher this week officially enters the “Pocket” of Open Air between $105 and $115 – there’s no obvious price resistance between those zones given the sharp drop in May.
While price may not continue straight up/directly higher without some sort of retracement, price may ultimately continue its higher movement towards the prior reversal high at $115.
This is the logic of “Open Air” – looking backwards on a chart to see any obvious price targets or levels. An absence of these barriers suggests continued movement through the “Air Pocket.”
For those wishing to look inside the Daily Chart, here is the Hourly Chart Structure:
I wanted to make a quick note from an educational standpoint, particularly with regard to higher timeframes.
Note the $95 confluence support area on the Daily Chart and now view the structure as it appeared at the beginning of February.
The Hourly Chart showed a downtrend developing multiple positive momentum divergences into the Daily Chart’s confluence support at $95.00.
This helped confirm the bigger picture “Retracement” or “Range Bounce” play mentioned above.
Eventually, price broke through the falling Hourly trendline and developed a “Kick-Off” surge in Momentum – an early chart signal of potential trend reversal.
This provides a good example of one of my favorite ‘complex’ trades:
Higher Timeframe Support + Lower Timeframe Positive Divergences/Kick-Off Signal
Eventually, the Breakout Trade developed from this week’s breakthrough beyond $104.00 and $105.00, placing us in the current “Open Air” Zone.
For now, let’s watch price in the context of the Daily Chart’s support level near $103 (if you’re bullish, you don’t want to see price return back under $103 anytime soon) and the current impulse/trend move making its way through “Open Air” perhaps all the way back to $115.00 as a potential target.
Related: United States Oil Fund (NYSEArca:USO), SPDR Select Sector Fund (NYSEArca:XLE), Exxon Mobil Corporation (NYSE:XOM), Chevron Corporation (NYSE:CVX), Valero Energy (NYSE:VLO), ConocoPhillips (NYSE:COP), BP p.l.c. (NYSE:BP).
My name is Corey Rosenbloom, CMT (Chartered Market Technician) trader, educator, analyst, and I am excited to share with you my experiences studying and trading the markets and to hear from you regarding your experiences, challenges, and frustrations, and successes. My goal is to create a community dedicated to reaching out to those who have been burned by the market or are anxious about risking their money to make money in the stock, options, or futures markets. Together, we can share strategies and learn how to overcome crippling fears that keep us from achieving our highest potential.