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Watch for a Triangle Breakout in Crude Oil


December Light Sweet Crude futures (CL) have been consolidating in a triangle pattern since mid-October. A drop below the low of the pattern at 79.10 signals a further slide in crude. A rally above the upper boundary, currently at 82.25, signals a deeper pullback against the longer-term downtrend.

Figure 1. December Light Sweet Crude (CL) Daily Chart

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Currently the price of crude is hovering above triangle support at 79.10. A daily close below this level indicates the triangle is broken, providing a downside target of 74.25 to 74.10 based on the height of the triangle. Another target based on a Fibonacci extension of the October decline is right near 70.

Given the downtrend, a breakout lower is higher probability trade than a breakout higher.

If the price moves above the triangle, be careful of false breakouts. Longs should be kept on a relatively tight stop. The price objective for a triangle breakout higher is 87.10 to 87.25. Beyond this the price could encounter resistance at the prior September consolidation lows (just below 90). Therefore, if the price reaches this region, based on the longer-term downtrend it's a selling/shorting opportunity.

Long-term seasonal studies favor declining crude oil prices into early December, at which point crude usually forms a bottom.

 

 

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