Oil has re-entered the downward pennant after failing to hold above the upper side (1) at 96.60 (previous resistance becoming support) and breeching the short and steep upward support line (2) on June 20th at 97.25. The decreasing price volatility represented by the pennant goes back to January 2012 on the upper side and June 2012 on the lower. Remaining support within the pennant formation is at 93.00. The bottom trend and pennant support is at 92.25. In addition the 200 day moving average resides at 92.31, coinciding with the lower limit of the pennant.
The year long duration of the formation, the 200 day moving average and the recent change in Fed policy combine to give good probability that a breech of the lower support will provide indication of substantially lower price intent.
If the price can sustain the support at 93.00 a short term move into the upper part of the pennant is possible, though the longer term case looks increasingly bearish.
1. Buy Order at 93.05 with a take profit limit at 94.35 and a stop loss at 92.55 Potential profit 180 points, potential loss 50 points. Profit/loss ration 130/50= 2.6
2. Sell entry stop order at 92.20 with a take profit at 90.55 and a stop loss at 92. 60 Potential profit 165 points, potential loss 40 points,. Profit/loss ratio 165/40=4.13.
Chief Market Strategist