Oil remains in an uptrend this year, but the bigger trend remains down and this could be just a counter-trend bounce. The price chart shows the USO Oil Fund (USO) in the top window and June Crude (^CLM16) in the bottom window. I am using June Crude for analysis because it is the pure play on oil.
Crude advanced around 50% in four months, but this advance still pales relative to the bigger downtrend and the prior decline. Note that oil fell around 40% from October to January. This down-up sequence highlights an important aspect of trading. Namely, it takes a 100% advance to recover from a 50% decline (i.e. 100 to 50 and back to 100). On the price chart, notice that June Crude is near the 61.8% retracement and broken support. A classic tenet of technical analysis is that broken support turns into subsequent resistance. The 61.8% retracement is a Fibonacci level that marks a potential reversal zone. Taken together, this suggests that further upside could be limited.
Despite potential resistance and a possible reversal zone, crude is not showing any weakness just yet and the immediate trend is clear up. The blue channel lines define the 2016 uptrend with support marked at $38. Even though this could be a counter-trend rally, this medium-term trend appears to be the dominant force right now so we need to wait for some sort of bearish indication, such as an outside reversal week.
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--Arthur Hill CMT
Plan your Trade and Trade your Plan
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