Trend Insights From The Monthly Charts

Most technical analysts will tell you that you must look at multiple time frames in order to get an accurate picture of any market. That means that, in addition to daily charts, you should also look at weekly if not monthly charts to determine the strength of the trend, and consequently, which positions you should take.

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Crude oil is a good example of the importance of multiple times frames.  In early January, the daily analysis of crude oil was positive (see chart), and trading United States Oil Fund (USO) looked attractive. Now that crude has rallied from a low of $43 (basis the April contract) to the $55-area, the longer term charts must be examined more closely.

The monthly chart shows that crude oil dropped below the starc- band in November and December, which was a sign the market was very oversold. Crude oil was up 18% in January, but it is still below the 20-month EMA at $59.57. The monthly On Balance Volume (OBV) made a new high in September and has now moved above its WMA. The Herrick Payoff Index (HPI) is below its WMA and below the zero line, so it is still clearly negative.

The weekly chart looks quite a bit more positive, as a weekly doji buy signal was triggered with the close on January 4, at $48.65. The chart has strong resistance in the $61-area (line a) and the weekly starc+ band.

The weekly OBV for crude oil is above its WMA and looks positive. The weekly HPI formed a bullish divergence (line b) at the late December lows. It is now well above its WMA, but still has not moved above the zero line. A move by the HPI above its zero line would be bullish. Many are not expecting crude oil to move above $55 per barrel, but I think $60-$65 will be reached in the next few months based on the weekly analysis.

The stock market’s positive technical readings have favored buying ETFs and stocks on the pullbacks like the one we saw last week. That is still the favored course of action, until we see warning signs of a deeper correction through changes in our indicators.

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