Crude Oil: You Have To See This Chart…

| May 3, 2013 | 0 Comments

oilThe price of crude is all over the map in recent trading.  Earlier this week, West Texas Intermediate (WTI) plunged from just over $94 a barrel down to $90… a steep drop in just two trading days.  But come Thursday, the US benchmark oil contract shot right back up to $94.

And that’s just the start of it… 

Go back to the second week of April and you’ll find oil dropped from $95 all the way down to $86 in four days… another hefty downside move.  But a week later, a massive rally completely recovered those losses.

Let me show you what I mean…

Crude

As you can see, April’s been one heck of a rollercoaster ride for crude.  As a close follower of the energy markets, I can attest that these big intraday moves are happening with greater frequency.

What’s going on?

First of all, there’s a lot of conflicting economic data coming in from around the world.

For example, Q1 2013 GDP data out of China suggests the country didn’t grow as fast as most economists had expected.  In fact, the 7.7% growth number was one of reasons oil fell so hard in early April.

But a relatively strong earnings season here in the US, mixed with a slew of mildly bullish economic data, sent crude right back up to the mid-$90 a barrel range.

And then came this week’s extremely bearish EIA oil inventory report…

On Wednesday, investors found that commercial oil stocks increased by 6.7 million barrels for the week of April 26th.  But more importantly, the report revealed that the US is sitting on a record 395.3 million barrels of crude.  That’s the biggest crude inventory since the EIA began tracking the weekly date in 1982!

Supply numbers of that level are undoubtedly bearish. Crude reacted with a swift $3 selloff once the news hit the wires. 

But the funny thing is…

By Thursday, all those losses were recovered as the market popped right back up to $94.   And this morning, crude is pushing above $95 on stronger than expected US jobs numbers.

I’m no stranger to volatility in the marketplace, but the recent price action in crude is strange.

So unusual that I did a bit more research and found this chart…

Crude

What you see in this long-term weekly chart of WTI crude is a classic triangle consolidation pattern.  In case you’re unaware, triangles are a very reliable technical analysis pattern that usually foretells a large price move in the not so distant future. 

It works like this…

The two blue trendlines connect the major market tops and bottoms over the past few years.  As you can see, the blue lines are converging to a point.  That means investors are becoming increasingly unwilling to hang onto their long or short positions- hence, the dramatic up and downswings in the market lately.

But most importantly, triangle consolidation patterns usually resolve themselves with a big price move. 

Now, I’m not talking about a $9 move like we saw in early April.

I’m talking about an enormous $20 to $30 blowout.

Which way will the move be?

It’s too early to tell just yet.  But rest assured, I’m keeping a very close eye on this intriguing technical situation.  Stay tuned to Commodity Trading Research for more insight and ways to potentially profit from crude’s next big move.

Until Next Time,

Justin Bennett

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Category: Crude Oil, Energy

About the Author ()

Justin Bennett is the editor of Commodity ETF Alert, an investment advisory focused on profiting from the ebb and flow of important commodities via ETFs. The commodity veteran and options specialist is also a regular contributor to the Dynamic Wealth Report. Every week, Justin shares his thoughts with our readers on a variety of commodity-related topics. Justin is also a frequent contributor to Commodity Trading Research’s free daily e-letter. And he’s the editor of another highly successful and popular investment advisory, the Options Profit Pipeline.