Heating Oil futures reached a critical support level during Monday's tumultuous trading session in the energy sector. The nearby Nymex Heating Oil futures initially sold off heavily in tandem with crude oil, and then rebounded sharply after touching the bottom of a large Rectangle chart pattern.
This Rectangle chart pattern has been developing since the end of August, and now measures 49 bars on the 240-minute time interval. The formation is much clearer than comparative chart patterns across the rest of the oil complex. The bounce from the low near $2.92 per gallon is very constructive for a potential rally back into the formation with high potential for a retest of the resistance level near $3.07 per gallon.
Monday's swing low is now indicated as a major technical pivot point on the chart, with a new low below that level signaling potential for a major sell-off to a much lower price level. Absent a violation of this pivot point to the downside however, the trading range in the near term is likely to be dominated by price action inside of the Rectangle. A rally above $3.07 is needed in the long term for an upside breakout from this chart pattern.
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