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Oil in Long-Term Uptrend, Regardless of Middle East: Charts

The price of oil is rising and it is unwise to dismiss this as a result of the increase in tensions in the Middle East. These political problems have added to the upside pressure, but the oil price uptrend had already been set. If, or when, the political problems are resolved, uptrend is expected to continue, according to the charts.

Oil prices have been in the wide sideways pattern since October 2009 to November last year, trading betwee the $68-$87 trading band.

But the move above resistance near $87 was the first indication of a significant change in the price activity; in this case — upwards. The breakout above this level has a target near $98, just below the psychologically important level of $100.

The second indication of a significant change in the trend direction was the confirmation of the new uptrend line. This trend line starts with the August 2010 lows and uses the low in November. The strength and importance of the trend line was tested again in January 2011 when the price dipped below support near $87, and rebounded again. This rebound suggested oil had moved into a new trending environment. This confirmed consistent uptrend pressure for a move towards the next resistance level near $98.

The recent up move in the oil price is part of a longer-term uptrend. Investors syhould watch for more rally and retreat activity with the uptrend line acting as a support level. The current value of the uptrend line is near $88.

The technical resistance target is near $98. When this level was reached in 2007 the oil price very quickly moved above this level and tested the $100 price level. The most important feature is that when the price moves above $100.00 then the next price move is very rapid. The $100 level is a psychological level and the oil price hovers near the $98 to $100 level. This resistance area is strong. Once this resistance area is broken the price moves very quickly to the higher target levels near $110 and $122.

The increase in the oil price is attracting more speculative trading activity because many traders expect the price to move quickly once the $100 level is broken.

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 CNBC's Asia Squawk Box. He is a speaker at trading conferences in China, Asia, Australia and Europe.

If you would like Daryl to chart a specific stock, commodity or currency, please write to us at ChartingAsia@cnbc.com. He is now also on Facebook.

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  • Daryl Guppy is an independent technical analyst who appears frequently on CNBC Asia.

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