Heating Oil futures followed the energy complex lower in Friday's volatile session, setting up a textbook pattern breakout. The push lower in the Heating Oil violated the key support provided by a major Rising Wedge chart pattern which began developing in early October. Follow-through to lower levels in the week ahead may signal the end of the latest rally with a big correction on the horizon.
The Rising Wedge pattern has been this market's definitive guideline throughout the entire rally from the lows near $2.70 per ounce. This pattern scores high marks across the board, with an overall Quality of 8 bars. While the momentum associated with the breakout shows a modest 3-bar reading, the prolonged duration of the pattern over both price and time increases the potential for a follow-through move towards the forecast range.
The projected price target for this move calls for a minimum retracement to the $2.93 per gallon level. An increase in momentum could trigger an accelerated decline, taking the price as low as $2.70 per gallon. This would represent a 100% retracement of the 6-week uptrend and call into question the potential for Heating Oil to make new highs again during the winter season.
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