Flags Fall for Light Crude and Brent


Oil surged in early June and looked poised to break flag resistance. A little follow through last week was all that was needed. US stocks did their part as the Russell 2000 and Nasdaq hit new highs. The Dollar did its part as the US Dollar Index fell 2.8% this month. The tea leaves were aligning for a breakout, but oil did not oblige and remained stuck below flag resistance. Failure to break out suggests buyer fatigue that could foreshadow weakness in the coming days or weeks. 

The first chart shows August Light Crude Futures (^CLQ15) in the top window and the USO Oil Fund (USO) in the bottom window. The futures contract is the best security for analysis because it is the true source. USO, on the other hand, is a hybrid security made up of several futures contracts with rollovers and management fees. 

Click this image for a live chart

As the chart shows, Light Crude Futures have been working their way lower in what looks like a falling flag, which is a bullish consolidation. There is only one problem: the flag is still falling. This means the immediate trend is still down. A break above 62.5 on the futures and 21 for USO would reverse the six week slide. Short-term, chartists can watch this week's lows for signs of a breakdown within the flag. A move below 59 on the futures contract and 20 on USO would be bearish. The second chart shows August Brent Futures (^BQ15)** and the US Brent Oil ETF (BNO) with similar characteristics. 

Click this image for a live chart

Thanks for tuning in and have a great weekend!
Arthur Hill CMT

Arthur Hill
About the author: , CMT, is the Chief Technical Strategist at Focusing predominantly on US equities and ETFs, his systematic approach of identifying trend, finding signals within the trend, and setting key price levels has made him an esteemed market technician. Arthur has written articles for numerous financial publications including Barrons and Stocks & Commodities Magazine. In addition to his Chartered Market Technician (CMT) designation, he holds an MBA from the Cass Business School at City University in London. Learn More
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