Brent Crude Technical Update: Low Volatility Leads To High Volatility

Since our last update on oil two months ago (Dec. 22, 2016) Brent Crude has not gone far, rising approximately 2.4% from 54.82 to 56.16 today. During this time it has traded within a relatively tight range (low volatility), from around a low of 53.61 to a high of 58.35.

The chart pattern that has formed in the past two months is either a bullish symmetrical triangle trend continuation pattern or a bearish head and shoulders top. Whichever way the breakout goes should confirm the next direction, either a continuation higher of the 13-month uptrend, or a deeper retracement off the 58.35 high.

Brent Crude - Daily Chart - Symmetrical Triangle

We should know which way Brent is going to go within the next one to two weeks as price is getting close to the apex of the triangle. A valid triangle should breakout before moving more than three quarters towards the apex.

Bullish Case

Brent has been in an uptrend since hitting a bottom at 27.13 in January 2016. In December further confirmation for the uptrend was given as a bullish trend continuation signal triggered on the rise above 53.71 (top of four-month base). The subsequent two-month plus consolidation phase has formed around support at the top of that pattern (resistance becomes support) and at support of the 55-day exponential moving average (ema). These are bullish indications.

At this point a breakout of the symmetrical triangle will be triggered on a decisive rally above 56.92 and confirmed on a daily close above the most recent swing high of 57.41.

Brent Crude - Weekly Chart

Upside Targets

First target zone = 61.29 to 61.31

  1. 61.29, triangle target
  2. 61.31, 38.2% Fibonacci retracement

Second target zone = 66.17 to 71.40

  1. 66.17, 200-day ema
  2. 67.24, completion of measured move or AB:CD pattern
  3. 69.59, prior swing high resistance from May 2015
  4. 71.40, 50% retracement of decline off June 2014 peak of 115.67

Bearish Case

The two month consolidation pattern may turn out to be a head and shoulders top. We won’t know whether the pattern is a valid bearish pattern until it is confirmed with price breaking down.  A bearish trigger first occurs on a drop below the 55-day ema (now at 54.07), and it is confirmed on a drop below and subsequent daily close below the most recent swing low at 54.48.

Note in the chart below that the 55-day ema has merged with the 55-day ema. This makes a breakdown a little more significant as two indicators are identifying a similar price support level.

Brent Crude Daily Chart - Head & Shoulders Top

(www.marketstoday.net/en/)

Following a breakdown lower targets include:

  1. 50.98/50.91, consisting of the 50% retracement and 200-day ema, respectively
  2. 49.74, minimum target for the head and shoulders top
  3. 49.23, 618% Fibonacci retracement

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Bruce Powers CMT 5 years ago Author's comment

Oil - Bearish breakdown triggered. Targets lower.