While the bullish crude oil move is getting long in the tooth, Al Brooks notes that the correction will likely be shallow.
The crude oil futures market has been in a strong bull trend for four months. However, the big bull bar from two weeks ago might be a blow-off top. The bulls will probably begin to take profits soon. Once they do, there will likely be a pullback for at least a couple weeks.
The crude oil futures weekly chart had a big bull bar last week and a small bull bar this week. When a big bar comes late in a bull trend, it attracts profit takers (see chart). If enough traders take profits, the bull trend will pull back. It could then enter a trading range.
When a rally is as strong as this one has been, the first reversal down is typically minor. That means either a bull flag or a bear leg in what will grow into a trading range. The bears therefore will only take quick profits and the bulls will buy the selloff.
Transition into trading range likely soon
Traders do not believe that a bear trend will start within the next couple weeks. However, a trading range is becoming increasingly likely. The first target for the bears is the March 21 high, which is the breakout point of the April 1 bull breakout.
The rally has broken above the three-month bull channel on the weekly chart. That typically leads to profit taking. It is also at a measured move projection based on the March 13 breakout. The March 25 low tested the March 1 high. Therefore, the March 13 bar was a good candidate for a measuring gap.
But resistance is not enough of a reason to sell a strong bull trend. The bears want to see bear bars closing below their midpoints, big bear bars, and consecutive bear bars. Without that, the Small Pullback Bull Trend will continue. The bulls will keep buying small pullbacks until they start to see big pullbacks.
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