Chart Of The Day: After OPEC Resists Output Increase, Where Next For Oil?

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OPEC and its oil-producing allies, have—at least for now—resisted US President Donald Trump’s calls to increase output, and have instead elected to keep production levels steady. This decision was made even as the supply outlook has sharply decreased due to the sanctions against Iran which officially begin in early November.

The news caused oil prices to open 1.19 percent higher Monday. The rally extended to a 1.99 percent gain by closing. Today, the price has climbed another 0.43 percent so far. How much higher might WTI prices go?

Chart Of The Day: After OPEC Resists Output Increase, Where Next For Oil?

WTI Daily Chart

Yesterday, the price opened above the neckline (which is the line drawn across the highs of the two recent peaks, marking the border of an H&S bottom), thereby completing the pattern.

The H&S bottom depicts the previous downtrend in which the head continued to the level of the left shoulder. However, the right shoulder failed to register lower than the head. Instead, it climbed higher. The peak above the neckline completes a midterm reversal (in the long term it was still considered an uptrend since the early 2016 bottom).

The price target is measured by the shortest part of the height of the pattern and is $6.67 from the point of the breakout above the neckline, making the target about $78.

Trading Strategies – Long Position Setup

Conservative traders who should generally wait for a minimum 3 percent penetration to avoid a bull trap may consider waiting for a long-term fresh peak, above the $75.27, July 3 high, confirming the long-term uptrend and avoiding its resistance.

Moderate traders may enter with a third day close above the neckline or with a close above $73, which would satisfy the 2 percent penetration guideline to avoid a bull trap.

Aggressive traders’ requirement for a minimum 1.00 percent penetration has been already satisfied on Monday.

Conservative Trading Sample:

  • Entry: $75.00, after posting a peak higher than the level reached in July.
  • Stop-loss: $74.00
  • Risk: $1.00
  • Target: $78
  • Reward: $3.00
  • Risk-Reward Ratio: 1:3

Moderate Trading Sample:

  • Entry: $73:00
  • Stop-loss: $72.00
  • Risk: $1.00
  • Target: $78
  • Reward: $5.00
  • Risk-Reward Ratio: 1:5

Aggressive Trade Sample:

  • Entry: $72.50
  • Stop-loss: $72
  • Risk: $0.50
  • Target: $78
  • Reward: $5.50
  • Risk Reward Ratio: 1:11

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