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Is Crude Oil about to Breakout to Higher Levels?

Commodities / Crude Oil May 26, 2013 - 11:05 PM GMT

By: Donald_W_Dony

Commodities

Light Crude oil and the Energy Sector Select SPDR ETF (XLE) normally trade in similar trends. In early May, XLE broke above a significant resistance level of $80 and moved to a new high. However, Light Crude has failed to follow the energy ETF and remained pinned under the $98 resistance line.


The question is will crude oil fall back into its standard pattern and follow the XLE higher?

One clue to the future movement of oil is maybe in the trading pattern that is developing over the past four months.

Light Crude oil appears to be tracing out a broad head & shoulder formation. Until oil trades over the resistance line of $98, the pattern is not complete and is not dependable. However, should oil advance over $98, then there is a 75% probability of the commodity rising up to the projected target of $110.

However, the fundamentals would support slightly lower price levels. EIA estimates that WTI will average $93 in 2013. With several pipeline projects from the midcontinent to the Gulf Coast refineries coming on line this year, the reduction in transport costs should keep Light Crude prices contained.

The August contract for delivery on Light Crude would also suggest that prices will not move too high. The closing price on Friday was $94.06.

Bottom line: The market is not expecting, at this time, that Light Crude will move over $98. Nevertheless, the breakout advance from XLE and the trading pattern of WTI suggests that the market maybe wrong.

By Donald W. Dony, FCSI, MFTA
www.technicalspeculator.com

COPYRIGHT © 2013 Donald W. Dony
Donald W. Dony, FCSI, MFTA has been in the investment profession for over 20 years, first as a stock broker in the mid 1980's and then as the principal of D. W. Dony and Associates Inc., a financial consulting firm to present.  He is the editor and publisher of the Technical Speculator, a monthly international investment newsletter, which specializes in major world equity markets, currencies, bonds and interest rates as well as the precious metals markets.   

Donald is also an instructor for the Canadian Securities Institute (CSI). He is often called upon to design technical analysis training programs and to provide teaching to industry professionals on technical analysis at many of Canada's leading brokerage firms.  He is a respected specialist in the area of intermarket and cycle analysis and a frequent speaker at investment conferences.

Mr. Dony is a member of the Canadian Society of Technical Analysts (CSTA) and the International Federation of Technical Analysts (IFTA).

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