The Crude Oil Compression Continues into June

May 30, 2013: 12:15 PM CST

If you prefer range trading strategies, the recent activity in Crude Oil has been a bonanza for you.

Let’s update our levels and trendline boundaries for Crude Oil and note potential impulse targets on any breakout of the tightly compressing triangle trendlines squeezing about the $93 midpoint area.

We’ll start with the Weekly Perspective:

I drew adaptive trendlines to connect the series of compressing highs and lows that build the current structural pattern.

From the wide volatile period of early 2011, crude oil has compressed up and down from the $93/$94 midpoint value area, giving opportunities to play “fade” or compression style range trading tactics at key boundaries.

The pattern now reveals a tight compression between the $97.50 level and (depending on how you draw the trendline), $88 or $91 area.

Short-term traders can continue to play reactions or intraday swings between these two levels – this has been a very effective strategy – while swing or longer-term traders may want to remain on the sidelines until a confirmed breakout of this pattern develops.

Crude oil can and likely will become volatile again, but it first needs to break free from this visual compression boundary (triangle pattern) that is squeezing price between these levels.

Initial upside targets on a breakthrough preferably above $100 (to give room for ‘traps’) include $105, $110, then even $115 on a powerful upside breakout.

Alternate downside targets simply include the $86 low from April, the $83 low from late 2012, and finally the $77.50 level from mid-2012 as simple planning targets.

The Daily Chart provides a tighter picture of the short-term triangle boundaries for trade planning:

A quick glance reminds us that the tighter or short-term trendlines intersect price into $97 and $92 per barrel.

Note the sideways overlap or compression of the 20 and 50 day EMAs near $94 along with the (slightly) rising 200d SMA into $92.35 (which has acted as short-term support with daily spikes or reversal candles off this level).

Today’s action reveals a similar “will it break or will it bounce again” dynamic at work into $92.50.

Note the green and red “If/Then” Bull/Bear bias levels on a breakout of the compressing levels.

The USO Exchange Traded Fund also reveals compression levels and pending breakout targets:

I used a line chart to highlight the compression in price about the $34 central value area or midpoint.

We can clearly see a compression in the larger picture but perhaps more importantly for short-term traders in the July 2012 to present activity.

Continue watching these levels for short-term/intraday opportunities or breakout/swing trading opportunities moving forward.

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Corey Rosenbloom, CMT
Afraid to Trade.com

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13 Comments

13 Responses to “The Crude Oil Compression Continues into June”

  1. theyenguy Says:

    I comment, the monthly chart compression shows a consolidation triangle with pivot point at 34. This week, the daily chart of Oil, USO, shows a pop higher from last week’s sell off to strong resistance at 34; but then a continual decline, throughout the week to close at 32.61. The direction for oil is now down, as it failed to rise through strong resistance. Massive consolidation triangles, or compressions are akin to broadening top patterns where prices fluctuate, only to fall through the middle point.

    Bespoke Investment Group reports Record high crude oil inventories. Given such massive supply, the only way for price to go is down

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