What started as a short term bearish technical pattern may be developing into a very bullish longer term reversal in the Heating Oil futures. The market had been trading inside of a large Channel Up chart pattern before a downside breakout, shown here on the Autochartist 240-minute time interval.
The breach of support triggered a price forecast for a lower level, and once touched the market quickly reversed back into the channel on strong buying and solid momentum. This price action is what is commonly referred to as a bear trap, where the original direction of a pattern breakout finds no follow-through after the initial thrust.
Heating Oil is now approaching the upper resistance of this Channel Up formation, and there has been virtually no selling pressure as the price rises towards the 2.80 level. Often times the result of a bear trap is a price reversal followed by a breakout of the pattern in the opposing direction, which in this case would be a rally above the $2.80 per gallon price level. If this does occur, the resulting rally may be impressive, with a significantly larger price move than the downside breakout managed to achieve.
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