Energy

Crude Oil Head and Shoulder Pattern Setup

Posted 10/04/2018 8:37AM CTPhillip Streible

Crude oil futures hit a 3-year high this week on concerns that sanctions on Iran and falling output from Venezuela would stress the global supply, creating a squeeze. I find this latest rally quite impressive because I feel the bearish headlines lingering in the backdrop should outweigh the bullish headlines. First, the dollar is incredibly strong which should be a drag on commodities and the Fed is not backing down on raising interest rates. This should essentially slow down business development and demand for oil. Secondly, U.S. production is continuing to rise as well as Saudi Arabia offsetting any shortfall OPEC nations not delivering. I believe crude oil is setting up for a sharp correction back down to the mid 60’s and put spreads out in June 2019 is the best approach to try and capitalize on this.

However, the technicals paint a very different picture with crude oil pushing up and above every major moving average and while MACD and Stochastics are in overbought territory confirming the upward bias. ADX which measures the strength of the upward trend shows the bull move is continuing to get stronger. Support is down at $72.36 where we should see consolidation and the right shoulder of this head and shoulders pattern created. Once a break occurs below $71.50 a washout down to $67.50 will complete the pattern.

Crude Oil Nov ’18 Daily Chart

Crude Oil Nov '18 Daily Chart

Phillip Streible

Early in his career Phillip began trading his own account as a screen trader focusing on the metals, grains and stock indices. He then became a Series 7 licensed financial consultant with A.G. Edwards. Later, he expanded his trading experience into a Series 3 licensed commodity broker with Investment Analysis Group. Most recently he was a senior market strategist at MF Global before joining RJO Futures in October 2011 as a senior commodities broker. As a senior commodities broker his goal is to show clients how to anticipate, recognize and react to bull and bear market conditions through the use of technical analysis techniques that help them to define risk.