×

Chart: Here’s why oil prices may be headed up

A worker stands next to a pump jack at an oil field Sergeyevskoye owned by Bashneft company north from Ufa, Bashkortostan, Russia.
Sergei Karpukhin | Reuters
A worker stands next to a pump jack at an oil field Sergeyevskoye owned by Bashneft company north from Ufa, Bashkortostan, Russia.

The trend breakout in NYMEX oil, first signaled by the Guppy Multiple Moving Average indicator (GMMA), has been confirmed. This is a significant trend change. Oil established a pattern of longer-term trend reversal with price oscillation around the $38 level, which formed a base for the rally to the next resistance level near $48. The next upside target is near $58.

Two barrier features on the chart acted to slow the rally from developing into a trend change.

The first resistance feature is the historical resistance level near $48. This resistance feature was strengthened by the proximity to the upper edge of the long-term GMMA which is also near $48 when the rebound rally commenced.

Both of these barriers have now been overcome. The upper edge of the long-term GMMA fell to near $46 and price has now moved above this level. Price has also moved above $48. Traders are now watching for a retest of these two resistance features to act as support features for any retreat.

The separation in the long-term GMMA is compressing and turning upwards. A change in trend direction is confirmed when the long-term GMMA group of averages first develop compression and then later turn upwards. The width and direction of the long-term GMMA confirms that investors will buy into any future retreat and drive oil prices up towards the historical resistance level near $58.

The resistance level near $58 is the most significant resistance level for any trend change. A successful breakout above $48 can move quickly to the historical resistance level near $58. This offers good short-term trading opportunities. We continue to use the ANTSYSS trade method to extract good returns from these price movements.

When the oil price fell, the downside targets were calculated by taking the width of the trading band and projecting in downwards below each new support level. The trading bands for oil are around $10 wide. This was particularly useful for describing the fall of the oil price between $108 and $38.

The same method is used to calculate the upside targets for any future new uptrend in oil. The breakout above $38 has a target near $48. The breakout above $48 has a target near $58.

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

Follow CNBC International on Twitter and Facebook.