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Ideas You Can Trade: US Oil - Bearish Trend Tests Long Term Support

Posted by Steven Hatzakis on Oct 22, 2013 2:48:00 PM

US Oil: Support Line of Long Term Bullish Channel Tested Following Bearish Momentum

The medium term daily candle chart below shows the price of US Oil since October 2012 until today where it is trading at 98.42 (as of publication) and just near session lows of 98.13 following a sharp drop after opening at 99.34 and before reaching 100.26 near session highs earlier.

The commodity was last covered in the Ideas You Can Trade series early last week, where the lower support line of the long term bullish channel (point 2 in green on chart)  - that was reached today  - was noted as a potential target if the bearish momentum (along point 8 in red) continued.  

If this momentum persists, the next stop for the viscous commodity may be closer towards the support line of the short term bearish channel (point 4 in magenta) which will intersect with the long term bearish resistance line (point 7 in dark red) and medium term resistance line (point 5 in yellow) just below. If this happens support can be found near those intersecting lines with a bullish return along a steep short term channel that could develop (such as point 1 in aqua) by the end of October close to 95.50.

If the support line of the long term bullish channel (point 2) can be regained and provide support (as it has already failed in the current session), the steep short term bullish channel (such as point 1) may arrive sooner and develop into a path to target back near 101.00 by the end of October.

 Below are examples of how to trade a bearish continuation or a bullish reversal:

1.  BULLISH BUY ENTRY ORDER: Create a “Buy Entry Stop” @ 99.41 with a Limit to take profit @ 100.20 and a stop-loss @ 98.99 Risk/Reward Summary: Limit risk = +79 points profit / (-42) Stop-loss risk = Gain to Loss ratio =   1.88

2.  BEARISH SELL ENTRY ORDER: Create a “Sell Entry Stop” @ 97.98 with a Limit to take profit @ 96.50 and a stop-loss @ 98.51 Risk/Reward Summary:   Limit risk = +148 points profit / (-53) Stop-loss risk = Gain to Loss Ratio =  2.79

Medium term chart:

 usoildaily oct 22 2013 note

 

 

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