Oil prices have been on the rise, in tandem with the improving global equity markets, as investors shift their attention from euro-zone debt problems to the generally positive economic indicators coming from the U.S. and Asia.
But an analysis of the oil charts suggests that the rebound is also technically driven.
The oil market usually shows a pattern of trending behavior between well defined historical support and resistance levels.
Starting on 2009 July, this pattern of behavior changed. The market developed a well defined up-sloping trading band. This band contained rally and retreat behavior but the general trending direction was upwards with a longer term price target near $100.
The move below the lower edge of this trading band on May 15 was a signal of a change in the trending behavior of the market. It signals a return to increased price volatility with fast moves between historical support and resistance levels.
The current support level is near $68. This is a long term significant historical support and resistance level. The next resistance level is near $78, and $89 after that. Any breakout above $89 has a technical target near $99 and psychological resistance near $100.
The support and resistance behavior also applies to the downside. A fall below $68 has support near $59.
Right now, the longer-term outlook for oil suggests increasing prices with a rebound from historical support. The momentum of price increase may be faster than the price increases in the past 12 months because of the rapid breakout behavior when resistance is broken. The long term target of $100 is achievable but there is stronger resistance near $88. A strong move above historical resistance at $88 will move quickly to historical resistance near $98.
Daryl Guppy is a trader and author of Trend Trading, The 36 Strategies of the Chinese for Financial Traders –. He is a regular guest on CNBCAsia 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. We welcome all questions, comments and requests.
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