Oil - A Technical Approach

When meeting new people it’s a common question to enquire as to their profession. In our industry this can lead to some interesting discussions with cab drivers as most of the general public are looking for a quick tip or a good news story for their NAB or TLS shares. The next question that seems to be popping its head up and certainly being picked up by the mainstream media, is the price of oil. At this time all forms of experts are trotted out to take a punt on the cost of oil per barrel and where it may go. I have even heard of people talking about using their cars only on the weekend as they are likely to get too expensive to run.

I thought we might step past that hype and look at the technical aspects of oil when compared to Gann studies. I recently wrote about an ABC long trade that was highly successful and if you have been watching the chart on oil CL-SpotV you should have seen another long trade signalled, filled and stopped out for a $2.30 profit or US$2360 profit per contract.

The chart below shows some time and price studies applied to the continuous contract. To form any view on where a market is headed price support or resistance is key. As the futures contract for oil is hitting all time highs, using previous tops is not possible. This is where the ABC pressure points tool can be of assistance.

Running from the 2001 low to the 2003 high gave us a significant range to watch. Adding this to 2003 low has signalled $47.91 as an area of potential resistance.

Combined with the use of Gann angles this price area starts to show an area of general resistance. Running angles of the highs in 2000 and 2003 we see an intersection around our price pressure point. The squaring of time and price is a concept that has been covered many times, however, to balance time and price can provide fantastic results.

For those traders who have access to tools like Gann Boxes and Squares you may want to see if you can isolate some harmony within the current move as compared to previous ranges. Unfortunately this is not within the scope of this article.

In short, with the use of a number of tools including a simple study of swing ranges a pullback on Oil is likely given the current price action. You could say the range up is quite overbought. This may not translate to lower petrol prices straight away; however, I don’t think it is time to sell the car just yet.

Good Trading

Aaron Lynch