I have been tracking a set-up for the SPDR Gold Trust ETF (GLD), which I analyze as a proxy for the ...
Can US Oil Go Higher?
06/30/2014 7:00 am EST
Tyler Yell of DailyFX.com helps refresh traders' memories regarding chart watching, by sharing his technical analysis and by tracking the movement of US Oil.
US Oil and UK Oil or Crude & Brent have been unexciting on a long-term chart since 2009, but that could change rather drastically in the near future given a few fundamental and technical developments. Recently, we've seen other commodities like Gold show up with very bullish moves. Given the wedge patterns across many commodity crosses, these moves are a breath of fresh air.
The Multi-year Wedge
If you're unfamiliar with a wedge pattern, here's a quick breakdown. A wedge or triangle is a technical pattern that often precedes a thrust in the direction of the prior trend. USD/JPY printed a heavily watched triangle from May 2013-Oct 2013.
Learn Forex: USD/JPY Triangle Followed by Thrust Higher
The chart above should make you familiar with two things. First, that triangles exist as a corrective move against the overall trend. Second, when a triangle expires, a move higher is often the result. Now, let's look at both UK Oil & US Oil.
Learn Forex: Triangles, Triangles Everywhere
UK Oil looks a little cleaner for an upside push should the triangle play out as presented. However, each chart shows a triangle in play since 2011 and a correction that started in 2008, potentially coming to an end.
By looking at the larger picture, both USOil and UKOil could be on the verge of a breakout due to exhausting triangle patterns. In order to validate the breakout, we can look to correlated markets to see if their also on the verge of a breakout. In the world of currencies, we have noticed a positive correlation to GBP-USD and UKOil.
Learn Forex: GBPUSD Overlaid on UKOil
GBP-USD overlaid on UKOil shows a rather clean correlation. In other words, when GBP-USD moves down significantly, so does UK Oil and vice versa. Looking to a long-term GBP-USD, a break-higher from a 5-year correction could be upon us and if that's the case, the correlation just shown would argue upside in UKOil and likely US Oil.
Learn Forex: Long-Term GBP-USD Chart
The red line on the chart sits around 1.7046, anchored to the pivotal corrective low in 2005 before hitting a top price of 2.1160. That level was also the corrective top in 2009 and a triple top level in the late 1990s. If the market does have a memory and the 1.7040 level doesn't hold GBP-USD down, then a move higher could be in store and correlations could take oil with it.
Key Levels Ahead
US Oil is pushing long-term resistance now and could have a hard-time without a boost from a weaker USD. Last week, Janet Yellen seemed to show the Fed as a non-threatening central bank to those fearing an abrupt hawkishness at this stage. If the Fed's tone remains the same for the foreseeable future, that could favor a weak USD and stronger commodities.
Indicators like Ichimoku show the Oil is gearing up for a strong move. However, in the end it's best to look for a key price action level to give before definitively looking for a breakout.
By Tyler Yell, Trading Instructor, DailyFX.com
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