The price of West Texas Intermediate or what is commonly referred to as WTI is surging higher Wednesday. Tesla owners are smiling while people who have long commutes in their cars are thinking about filling up on the way home to beat the price increase they know they will see all too soon. Let's drill down in a few charts to see what may looming for this key commodity.
In the daily bar chart of the nearby crude oil future, below, we can see that futures prices have been trending higher from around the middle of 2017. An uptrend line can be drawn along the low closes to identify the trend. A parallel line or return line can be added to show the range of trading. The top end of the range has been a place to reduce one's long exposure or to take profits.
The 20-day price momentum study is displayed as a line chart along the bottom. It is likely that price momentum will not make a new highs and this could be the start of a bearish divergence and perhaps a decline from higher levels and around late July.
Some readers of Kamich's Korner may be trading futures but more likely they are interested in opportunities in the equity market. There are many bullish-looking charts in the energy sector and we'll look at one in this article but let's check the sector using the Energy Select Sector SPDR ETF (XLE) (chart below).
In this weekly candlestick chart of the XLE, below, we can see that prices are above the rising 40-week moving average line. A weekly close above $80 will be a significant upside breakout and could open the way to gains to the $95 area.
I and many other chart readers like to look for big base patterns. There is a common thought among technical analysts that big bases can support big rallies so a three-year base pattern is potentially more bullish than a one- or two-year base.
In this weekly bar chart of Transocean (RIG) , below, we can see a base pattern that goes back to early 2015. Not bad. In the lower panel is the weekly On-Balance-Volume (OBV) line, which shows a bullish rise from early 2017. A rising OBV line tells us that buyers have been more aggressive with heavier volume being traded in weeks that prices have closed higher.
In this Point and Figure chart of RIG, below, we can see a potential upside price target of $23.50 being projected. A rally or trade at $14.50 will be bullish and a trade at $17.50 could allow for even higher price targets.
Bottom line: The price of crude oil is pointed up. The nearby WTI future could rally into the mid-$80s and will probably be considered "extended" or "overbought." A correction from late July would not be a surprise within the context of a longer-term uptrend. Higher oil prices are creating opportunities in equities but like everything else investors should look to buy the leaders and not the laggards.