Oil Technical Update
Have you noticed gas prices skyrocketing these days? Well, there's no mystery why, as oil prices around the world has risen sharply since the start of the year. 2011 was a consolidation year for Brent crude, held under 116.50 since September. The market became bullish in the end of February 2012, when it pushed above 116.50, and is now approaching the 2011 high of 126.65.
The daily RSI reading had been stuck between 40 and 60 coming into the year, and also popped up in the beginning of February.
These bullish signals have been followed by a sharp rally that is now closing in on the 2011 high of 126.65. The daily chart shows that the RSI above 70, and price tagging the upper bollinger band (3 standard deviations from the 200SMA), both suggesting overbought conditions. The relatively bearish candle also shows that the market is looking at resistance here, even before the test of 126.65.
A short-term bearish correction can be expected now or as the market gets closer to 126.65, but it should be noted that brent has a major bullish bias. The weekly chart shows the RSI reading rising back above 60 now after failing to break below 40, a sign of persistent bullish momentum. With that in mind, traders might want to follow the uptrend and buy on a dip.
The upside for a test and break of the 126.65 2011- high would be to the 2008-high at 147.50. The downside for a failed bullish attempt held under the 126.65 is initially the 100 handle, near the 2011-low.