Upside For Oil Prices

Technicals | May 26 2021

Bottom Line 25/05/21

Daily Trend: Up
Weekly Trend: Up
Monthly Trend: Up
Support Levels: $57.29 / $51.52 / $44.55 (July 2021 Contract)
Resistance Levels: $78.38 /$88.25 / $99.84

[All prices West Texas crude futures US$/bbl]

Technical Discussion

Reasons to remain bullish longer-term:
→ oversupply a major issue yet this to be balancing in a post-Covid-19 environment
→ bounce off capitulation low in April 2020 has stayed robust to this point
→ Oil price wars between major country producers always remain in play
→ Elliott Wave count remains on track for higher levels being attained

Price is presently hovering around the 38.2% retracement zone of the previous wave-(iii) move higher. This is very typical for wave-(iv)’s. What is also typical for wave-(iv)’s is that they unfold in a complex way. Generally via a choppy and overlapping flatter type pattern or triangle formation. Right here and now we appear to have an ascending triangle in the making. Yet more immediately price may only be heading higher as part of a wave-b, with a downside wave-c potentially still being on the horizon before our proposed wave-(iv) finally locks in a low.”

The above from our last review, and price action has followed our script very nicely indeed. To the extent that even though we only reviewed the contract last week, how it has performed since has enticed us back to offer up a trading recommendation on the long side tonight (see our trading section below for details).

So with the aforementioned wave-(iv) ascending triangle having potentially completed as an a-b-c pattern, now is the time to start looking for a breakout move higher. With the pattern triggering above $68.04. We also like this opportunity as the bearish divergence from our last review has not only triggered, it has also unwound back to an oversold position. A situation that allows for trading opportunities to come to the fore.

The triangle target post-trigger aligns $78.79, and this will keep our longer-term bullish rhetoric in play for a couple of reasons. Firstly it will see price surpass equality circa $71.00. Which will add substance to the longer-term move off the April 2020 lows being impulsive in nature rather than corrective only. Such a move will also take price above overhead resistance circa $78.38 and confirm that the intermediate upside move off the October 2020 lows is a Wave-3 rather than a Wave-C. A scenario that means longer-term, an overall 5-wave move to the upside is what is unfolding here. Which could eventually see price surpassing the $100.00 zone once again. One step at a time for now.

Trading Strategy

Based on our review tonight, we are going to offer up a trading recommendation on the long side. So trade long at $68.05 (July 2021 contract), with initial stops placed at $61.55. We will manage the position using a trailing stop.

Re-published with permission of the publisher. www.thechartist.com.au All copyright remains with the publisher. The above views expressed are not by association FNArena's (see our disclaimer).

This report may contain advice that has been prepared by The Chartist Pty Ltd (ABN 40 641 323 051). The Chartist Pty Ltd is a Corporate Authorised Representative (CAR No. 1282007) of Shartru Wealth Management Pty Ltd ABN 46 158 536 871, AFSL 422409. Any advice is considered general advice and has been prepared without taking into account your objectives, financial situation or needs. Because of that, before acting on this advice you should therefore consider the appropriateness of the advice having regard to your situation and your own objectives, financial situation and needs. We recommend you obtain financial, legal and taxation advice before making any financial investment decision. If the advice relates to the acquisition, or possible acquisition, of a product (other than a security e.g. a CFD) then the client should obtain the relevant Product Disclosure Document and consider it before making any decision about whether to acquire the product. Past performance is not a reliable indication of future performance. This material has been prepared based on information believed to be accurate at the time of publication. Subsequent changes in circumstances may occur at any time and may impact the accuracy of the information.

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