Crude oil futures have jumped about $2.50 a barrel this Friday morning on the heels of the U.S.drone strike, directly ordered by President Donald Trump, that killed a key Iranian military commander in Iraq. Commodity traders typically buy (or sell) first and ask questions later. With the nearby futures contract approaching $64 a barrel, a closer look at this market is a must before the Wall Street open.
It remains to be seen if this airstrike will be the start of a significant escalation in the ongoing tensions between Washington and Tehran, but traders are not waiting. Let's check out a few charts to get a sense of what could happen.
In this weekly bar chart of the continuous futures contract, below, we can imagine that prices are in the $64 area, just below the highs set back in March. A weekly close above $65 a barrel would potentially open the way for a rally to the $80 area based on the height of the consolidation this past year. The On-Balance-Volume (OBV) line was already in an uptrend before the news and the Moving Average Convergence Divergence (MACD) oscillator had crossed above the zero line for an outright go long signal.
Many or most Real Money readers will not be trading futures but they may be looking at the oil ETF, United States Oil Fund ( USO) . In this daily bar chart of USO, below, we can see that prices had a bullish setup before the airstrike. Prices are above the rising moving averages and we can see a bullish golden cross. The OBV line has been rising and the MACD oscillator is positive.
In this weekly bar chart of the USO, below, we can see that a weekly close above $13.50 will be a technical breakout and likely open the way to further gains.
In this first Point and Figure chart of USO, below, we can see that the software has generated an upside price target of $17.50.
In this second Point and Figure chart of USO, below, we can see a potential longer-term price target of $28.
Bottom-line strategy: The price of crude oil is responding quickly to international developments. It is impossible to know what could come next, but history suggests that oil prices could surge sharply in the weeks ahead. Avoid leveraged markets is my best advice.
