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Crude Oil Poised For Major Breakout


After breaking out of an ascending triangle in December, the April contract for crude oil has been stuck between $56.92 and $51.86. This is a fairly narrow range for crude oil; weekly Average True Range (ATR)--a measurement of movement and volatility--has dropped to its lowest level in 10 years. Tight price ranges typically last two to three months, before a bigger move develops. This tight area started on Dec. 2, so far lasting about 2.5 months.

Figure 1. April Crude Oil, Daily Chart

The uptrend that began in 2016 points to a continued move higher. The old triangle provides an approximate target of $64, based on the height of the triangle added to the breakout point. This target also aligns with the bullish flag pattern that has been forming since November.

An alternate view is that the triangle breakout has failed, pointing to a decline toward triangle support/trendline support in the $48 region. That will be an interesting scenario, if it develops, as the uptrend remains in play, yet a major false breakout to the upside occurred. $48 could be another buying location, or a selling location if the price starts falling much below $46.

In the short-term, a rally above $54.55 and especially $55 would signal upward pressure on the April contract, as the price breaks above the short-term descending trendline. On the downside, the price is currently drifting lower, so the price would have to drop sharply out of the consolidation to signal a downward breakout. The price will drift until

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