WTI Crude Oil breaks out from the inverted head and shoulders pattern
For the past two week’s we have been pointing to our readers about the potential inverted head and shoulders pattern that was shaping up on the Crude Oil daily charts. Price action validated this pattern and in fact resulted in a rather quick and a smooth rally with prices reaching towards 56.75 levels after clearing the short term and main resistance levels at 54.01 and 55.35
The chart below shows the daily time frame for Crude Oil futures.
WTI Crude Oil, Daily Chart – 22/04
Currently, price action is testing the resistance level near 55.35 levels. A successful test of this level will be very bullish for Crude Oil as the next upside resistance comes in at 63.4 through 65.94 levels upon clearing the next resistance at 58.
The rising trend line connecting the higher lows, which as we mentioned could be used as a guide for the rally continues to hold and as long as the trend line is not breached, Crude oil could see a continued momentum to the upside.
Looking to the 4-hour chart, we notice price trading smoothly within the rising price channel and currently seem to have formed a interim top near the 56.5 levels. A brief dip to the broken resistance level near 54.37 through 53.69 looks inevitable, following which we could expect to see the rally being resumed.
The 4-hour chart also points to the alternative scenarios, where a break below the support/resistance level below 53.69 could potentially turn Crude Oil futures bearish yet again with the downside supports coming at 51.51 and 49.69. However, the likelihood of a decline much lower is very minimal.
Crude Oil, H4 Chart – 22/04
Fundamentally, there haven’t been much of market moving events for Crude Oil in the recent week. The main risk however comes from today’s Crude oil inventories report. Last Wednesday’s inventory report showed inventories increased 1.3 million against forecasts of 3.5 million. The smaller increase in inventories helped to push prices higher in the short term. Another such reading today is likely to keep the bullish momentum going for Crude Oil. Expectations for today are for an increase of 2.7million.
Finally, from the weekly charts, we notice that the bullish rally has been very well intact and at the time of writing, the rally marks close to a 5-week rally which saw prices lift off from 44.83 lows towards 53.48 highs. A correction therefore in this aspect cannot be ruled out and we expect to see any declines to hold near 53.48. Of course this would mean price will then have to break above the most recent highest close at 56.04 in order to target the eventual projected price of 62.13
With the US Dollar starting to show signs of slowing down its pace of gains, Crude Oil futures are likely to continue posting their gains in the short term. A continued rise in the Crude oil prices at the current pace would be seen as a welcome move by most economies which should translate to the inflation stabilizing across the board.
Crude Oil, Weekly Chart – 22/04