On 30 August I wrote about a bearish pattern that had formed in the chart of West Texas Intermediate Crude (WTI). In the article I said that “oil could fall by around $11 to $84 representing a decent trading opportunity.” I also said that the “pattern is confirmed as bearish when the lower support line is broken in convincing fashion”, and as chart below shows, oil made a false breakout on 7 September, before making a new high at $100.42. It then broke sharply lower on 17 September, falling for three days in a row and losing more than 7% of its value.
A 4 month chart of crude oil
Chart courtesy of stockcharts.com
My downside target for oil remains around $84, however it’s worth noting that other analysts are now calling for lower crude prices, including famed technical analyst Charles Nenner.
Mr Nenner, whose firm, the Charles Nenner Research Center, provides independent market research to hedge funds, banks and brokerage firms all over the world, expects WTI to fall as low as $68.
Those who caught the breakout can let their profits run, but they should maintain a tight trailing stop loss. Right now a stop at around $94 would be ideal.
With such high levels of volatility in the market, and the potential for surprise moves to the upside – due to a conflict in the Middle East for example – those playing this move via a spread bet would be wise to use a guaranteed stop.