Early in NY, oil prices continued to fall during thin conditions on the Columbus holiday. After trading sideways for a month between the $44 and $50 range, price broke out higher and formed a bearish Butterfly pattern. Price is also to respecting both the 200- and 100-day Simple Moving Average(s).
Price action on the US oil daily chart highlights the key technical move. The bearish reversal pattern was targeted by the 161.8% Fibonacci expansion level of the X to A move and the 200.0% Fibonacci expansion level of the B to C move. If the slide continues major support will come from the heavily tested $44.00 level. If we continue to see a rebound across the board with commodity prices, we could see oil prices eventually target the $55 area.
If we see bearish momentum break the $44 level, major support may come from the psychological $40 handle. If the current consolidation range breaks above $57.50, further upside may target the $60.00 region.
The Trade: Buy US Oil at $45.75, with a stop loss at $43.75, and a take profit at $49.75. The Risk/Reward ratio is 1:2.
Edward J. Moya is the Chief Market Strategist for edmoya.com, an educational website for foreign exchange and commodity traders. He has over 15 years of investment industry experience in forex, stocks, options and futures. At edmoya.com, Mr. Moya writes daily currency and commodity analysis and has authored numerous articles on trading using both technical and fundamental analysis for major financial publications. He is a contributor of technical and fundamental analysis in currencies and commodities to SFO, Market News International, and Forex Factory.
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