The next $10 move up in oil may be easy, but be careful about the next moves afterward

Oil had an opportunity to roll over to lower levels, but recently pushed up instead. After moving in a shallow decline for a month, it looked strong on Friday - looks like it's breaking out, upward from a triangle. There are increasing reasons to think that oil is ready for a second leg for for this rally, including Tony Caldaro's count (mentioned earlier today in his weekend update) and some of the cycles data. And sentiment data analyzed in this weekend's report from COTS Timer blogspot shows that the smart commercial traders are going long on oil. That's the side we want to be on. Price is ready to break above the level I marked as "A" on the WTIC chart, and the technical indicators are supportive. First target at a C=A symmetry is about $65, but it can go higher if the trend is strong.


Here's the chart of USO also, a widely used ETF for oil. (You can research other ETFs for oil - they vary in terms of how closely they track the cash market, versus the futures, etc.) You can see there's a similar target level at about $48 for this ETF, at the Fibonacci .382 retrace level that's also close to the 200-day moving average.


Look at the combination of the Slow STO and OBV indicators. OBV is above its 30-day MA, and the Slow Stochastics at this special setting is coming back to its 50 midline. If you see the Slow STO move above its 50 midline while OBV remains above its 30-day MA, that confirms it's uptrending strongly (so hold on while that lasts!).



Higher target levels are possible, but first we'll need to see if WTIC can get above its 200-day moving average (MA), and how strong the trend looks on the indicators, and how the rally looks against the trendlines. For now, the main idea is that oil looks like a buy confirmed once it moves above the prior swing high (the one I marked as "A"). Stop loss for protection, looks reasonable at the April lows. That may feel far away, so a closer stop-loss level will be keeping an eye on the lowest uptrendline line that I marked on the WTIC chart (upper right). If it breaks (and especially, if it closes) under that trendline, then stepping out of it may be a very good idea. An intraday poke can be tolerated, particularly if it's quick. Remaining above that uptrending channel line should guide oil higher on this rally.

My best guess is that this remains a bear-market rally, so let's not be sanguine about how much higher oil may vault on this move. One reasonable target would be a 50% retracement of the entire move from the 2008 high, meaning approximately $91.50 on the WTIC chart. But it would also be reasonable to expect at least one more substantial pullback along the way - or even the possibility of new lows instead. In addition to the 200-day MA on the daily chart and the target levels indicated on those daily charts, we'll want to look at how oil reacts at the kiss-back to the broken channel line on the monthly chart (below). The target levels I've described above with the daily charts looks like they go along with oil kissing back the lower level of that broken channel line within a month. [*Update - you can also see chart price resistance at the lows of late 2006 and early 2007 close to that level.] If oil cannot get past that resistance, then it may indeed roll over, break under the 200-month moving average that previously gave support, and seek new lows.