Chart: $58 is the magic number for oil bulls

The Fawley oil refinery and Hamble oil terminal are seen on January 7, 2015 in Southampton, England.
Getty Images
The Fawley oil refinery and Hamble oil terminal are seen on January 7, 2015 in Southampton, England.

Is the worst over for oil markets? The commodity has managed a 20 percent rebound in the past three weeks, prompting speculation that a rebound is nigh. Technical analysis suggests a consolidation is under way, but a firm uptrend isn't in place yet.

A few weeks ago, the NYMEX oil chart suggested a downside target near $38, and if that support level failed to hold, a second and lower technical target near $26. Neither of these targets was achieved as oil developed a rebound from the low of $44.45 after falling below support near $48.

NYMEX oil trades in broad trading bands. The trending behavior for oil is defined by these trading bands. The fall in oil was very rapid with short-lived consolidation or pauses near each of the significant support or resistance levels. These support and resistance levels will also define the limits and barriers to any new rally and uptrend development.

Currently oil is developing a consolidation and breakout pattern between support near $48 and resistance near $58. On the daily chart the Guppy Multiple Moving Average (GMMA) indicator shows the short term group of averages testing the lower edge of the long term group of moving averages. The long term group of averages indicates the thinking of investors. This group of averages is beginning to compress and turn upwards. This shows investors have stopped the heavy selling. Investors are not yet strong buyers, but they have stopped the strong selling. This behavior is necessary before any new uptrend can develop.

Read MoreOil shipping: rail versus pipeline?

Investors and traders watch for this future GMMA relationship to develop to confirm a new uptrend is developing. They watch for the short term group of GMMA averages to compress and move above the upper edge of the long term group of GMMA averages. The upper edge of the long term GMMA is near $56 and is just below resistance near $58. Then investors watch the GMMA behavior during the retreat away from resistance near $58. The retreat should retest the lower edge of the long term GMMA and then rebound from this support level.

The development of the new uptrend is confirmed when the oil price is able to stay above resistance near $58. In this situation the next upside target is near $68.

Strong and fast downtrends normally do not quickly reverse direction so there is a high probability of a period of consolidation activity between $48 and $58 that may also several months. This provides a rally and retreat trading environment suitable for traders. Investors wait for the sustained breakout above $58 shown on the weekly NYMEX before they join the new long term uptrend.

Any new long term uptrend will also continue use the old support and resistance levels because the trending activity in oil develops in the environment of these well-established trading bands.

Daryl Guppy is a trader and author of Trend Trading, The 36 Strategies of the Chinese for Financial Traders – www.guppytraders.com. He is a regular guest on CNBCAsia Squawk Box. He is a speaker at trading conferences in China, Asia, Australia and Europe.