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Crude Consolidates, Watch for Breakout

After trending lower since July, the price of December Light Sweet Crude is consolidating between 94 and 89 (rounded).

The breakout of this consolidation will lead to the downtrend continuing, or a larger correction to the upside.

Figure 1. Light Sweet Crude (CL - December)


Consider 93.82 and 89.13 trade pivots. Movement through these levels can provide trade signals for the breakout. Keep it on the tight leash though. If a downside breakout occurs, target is 84.75. If an upside break occurs, target is 98.

An even better trade is when a false breakout occurs. This is when the price breaks through the aforementioned levels, continues to move outside the consolidation for at least 0.15 or more, but then sharply reverts back into the consolidation.

False breakouts present a low-risk-high-reward opportunity. If the false breakout is higher, the stop goes above the recent high, and the short entry is just below 93.82. If the false breakout is lower, the stop goes below the recent low and long entry is just above 89.13. Targets are at the opposite of the consolidation, or there's the option to hold the trade and see if it breaks out the other side of the consolidation.

The current trend is down, so the expectation is for a continued move lower. Yet the market has been choppy over the last several years, with trends not lasting very long. Therefore, trade what the market gives.


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