The Next Big Move in Oil

Oil's next move could be huge... and it could happen this week.

 

For the past two months, the price of oil has ping-ponged back and forth between $65 and $75 per barrel. By the look of the following chart, though, it's about to break out of that price range...

 

 

 

This is an ascending-triangle pattern made up of a series of higher lows and a consistent resistance area. Most of the time, this pattern breaks out to the upside. And if oil can break above resistance at about $75, this chart projects a move to as high as $90 per barrel.

 

There are, however, a couple of problems with the bullish scenario...

 

First of all, there's the negative divergence on the Moving Average Convergence Divergence (MACD) indicator. This momentum-based indicator often provides the first warning sign that a chart's primary trend is about to change.

 

Second, there's a strong probability that the U.S. dollar is attempting to pound out a bottom. I wrote about the potential for a bottom in the dollar back on September 3. All of the conditions that existed then still exist, and the greenback has traded higher over the past couple of days.

 

If the dollar rallies from here, then oil – which has benefited from a falling dollar – will likely break down below its rising support line. A drop below $66 per barrel projects a move all the way down to about $50.

 

It's too early to tell for sure which way the chart is going to break. But one way or the other, we're looking at the potential for a big move. A breakout to the upside will carry oil, oil stocks, and the overall stock market in general even higher. A breakdown will lead to much lower prices for oil and oil stocks... and it may finally signal the end of the bear market rally.

 

Watch the direction in which oil breaks. It could be one heck of a move.

 

Best regards and good trading,

 

Jeff Clark

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