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Charts signal crude oil outlook is still bullish

Oil workers
Diego J. Robles | The Denver Post | Getty Images

The outlook for oil prices remains bullish, both on the chart and in the economy.

World economies still run on oil. The U.S. economy may run on domestic shale oil, but China remains dependent upon imported oil.

West Texas oil sets the benchmark. The outlook for oil remains bullish, the chart confirmed with the reaction rally from near $38 and the retest of historical resistance near $48.

Three features have helped confirm the bullish outlook on the chart: the Guppy Multiple Moving Average relationships, the confirmed chart pattern and the history of support and resistance trading bands.

The first feature is the GMMA relationships, which are showing a classic breakout pattern.

The GMMA pattern of trend breakout consists of three parts: First is a rally that tests the value of the lower edge of the long term GMMA. This happened in June of 2015. The second part is a breakout above the upper edge of the long term GMMA. This developed in June of this year. The third part is a retest of the support levels followed by a rebound.

The short-term GMMA briefly dipped below the value of the long term GMMA. However, the price rebounded rapidly from the historical support level near $38. This behaviour confirmed the classic GMMA trend breakout pattern.

The long-term GMMA has compressed, but has moved sideways. This shows investors' support. Aggressive investor buying is shown when the long-term GMMA turns upward and begins to expand.

The second feature is the development of an inverted head-and-shoulder reversal pattern. The head and shoulders are shown with the curved lines on the chart. Recent resistance developed near $50. This is above the long-term technical resistance level near $48.

A move above $50 in the current rebound rally confirms the inverted head-and-shoulder pattern. This is a strong and reliable trend reversal pattern. The depth of the pattern between the neckline near $50 and the head is measured and the value projected upward. This gives a long-term upside target near $72.

The third feature is the historical pattern of support and resistance levels. The rebound from support near $38 is part of this pattern behavior. Technical resistance is near $48. A breakout above this level gives a medium term target 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. The breakout above $58 has a resistance target near $68, but this is a long-term target.

Daryl Guppy is a trader and author of The 36 Strategies of the Chinese for Financial Traders, available from guppytraders.com.. He is a regular guest on CNBC in APAC and a speaker at trading conferences in Asia, Australia and Europe.

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