Oil Triangle vs Price Channel

If Oil Puts in a New High in its Potential Price Channel (Red) Before Breaking its Bottom, It's a Potential Melt-Up Set-Up

If Oil Puts in a New High in its Potential Price Channel (Red) Before Breaking the Channel Bottom, It’s a Potential Melt-Up Set-Up

Oil has bounced off the bottom of a potential price channel (red on chart). If it should make a new channel high before breaking the channel bottom, it will be in its critical decision wave for setting up a melt-up vs. forming a channel top.

A melt-up set-up (purple on chart) would target 75.

If oil kills the price channel set-up or elects to form a channel top on a new high instead of breaking out into a melt-up, it’s forming either a triangle (navy blue on chart above) or a megaphone.

Here are the scenarios on the 60-minute chart:

Oil Scenarios on the 60-Minute Chart

Oil Scenarios on the 60-Minute Chart

The green scenario is the most likely at the moment.

Oil Appears to be Holding Up ES

Oil is Headed to the Top of the Triangle Right Shoulder on its Inverse H&S

Oil is Headed to the Top of the Triangle Right Shoulder on its Inverse H&S

Oil is surging for the neckline of its inverse H&S but it needs another pullback from it to complete a triangle right shoulder on the formation.

The pullback doesn’t have to be all the way to the bottom.  The target for a breakout from the inverse H&S would be roughly 78.

The market’s excited about OPEC pretending that it will cut back production in January, but typically there would be no actual cutback and everybody in the business knows it.  So there’s still a good chance of the inverse H&S morphing into a triangle before a lower low that would set up a bigger inverse H&S (purple scenario).

QQQ is taking another hit today, but ES seems to be held up by oil.  The best chance for a December dip in ES should be when oil reverses off the inverse H&S neckline.

If oil breaks through the neckline here without a pullback, it’s likely just going for the blue megaphone top before a move to its bottom to morph the triangle right shoulder into a megaphone right shoulder (not drawn).  That’s another way of setting up a larger inverse H&S to take out the January low.

Oil Inverse H&S vs Triangle

Oil Inverse H&S with Triangle Right Shoulder vs Triangle to New Low

Oil Inverse H&S with Triangle Right Shoulder vs Triangle to New Low

Oil is megaphoning across 44ish right now deciding whether it’s putting a triangle right shoulder on an inverse H&S (purple scenario) or whether it’s forming a larger triangle before a new low (green scenario).

If oil takes out the August low here or even gets close enough to it, the green scenario is playing out.  It’s a tough time of the year to run the purple scenario.

The good thing for oil bulls is that a new low would set up a bigger move upon breakout from a bigger inverse H&S.  A new low would probably go lower than the one I’ve drawn and take more time forming a bottom at the new low.

Every Top in the World on Oil 60-Minute Chart

Oil Now has Multiple Complete Topping Patterns on its 60-Minute Chart

Oil Now has Multiple Complete Topping Patterns on its 60-Minute Chart

Oil has now completed a rising wedge top (purple) with a smaller rising wedge top (pink) crawling up its bottom.  The minimum retrace target is the lowest touch on the bottom of the purple rising wedge.

It’s also completing a rising megaphone top (bright blue on chart), a megaphone top (orange on chart) at the top of a larger megaphone (silver on chart), and it appears to be working its way sideways to the bottom of its blue rising megaphone top with a small head and shoulders.

Typical oil overkill.

Oil needs a retrace to roughly the silver megaphone VWAP to be legal for a breakout upwards from the bottoming pattern it’s been forming since the beginning of the year.

Oil Topping Megaphone

Oil is Still Working on the Topping Megaphone for Its Rising Wedge

Oil is Still Working on the Topping Megaphone for Its Rising Wedge

Oil is still working on the topping megaphone for its rising wedge. The rising wedge formed within a megaphone across VWAP of a larger bottoming megaphone.

Oil must retrace to at least VWAP at 52, and the longer it spends up here, the more likely it is to retrace all the way to the megaphone bottom and put in a new low for its big correction.

Big Rising Wedge on Oil Too

Big Rising Wedge on Oil Means Any Breakout will be a Fakeout - Expect Megaphone or Other Top Before Trip Down However

Big Rising Wedge on Oil Means Any Breakout will be a Fakeout – Expect Megaphone or Other Top Before Trip Down However

This kills the potential triangle scenario for oil and turns the bottom back into a megaphone.

That means a trip to a lower low is likely coming up. Expect to break recent highs during topping process though.

Oil Mandatory Retrace

Oil has a Mandatory Retrace to 49ish and Probably 52.50

Oil has a Mandatory Retrace to 49ish & Likely 52.50

Oil has a mandatory retrace to put in to the VWAP of its bottoming megaphone (bright blue on chart). That’s at roughly 49ish on the May contract.

But oil also has to tag an interior megaphone VWAP at 52.50ish.

Often what happens in these situtations is that oil would start a megaphone across the VWAP at the 49 level, and get to the 52.50 level in the context of that megaphone.

Oil is likely to exert upward pressure on ES until it reaches at least the 49 level.  But it could zigzag on the way there.

Oil is Massing Along Price Channel Top

Oil is Massing at Top of Pink Price Channel

Oil is Massing at Top of Pink Price Channel

Oil is massing at the top of its pink rollover price channel.

That would usually mean it’s about to break out upwards.

That breakout should end the move down, but oil could continue to megaphone down here for a while.

It needs to retrace to the VWAP of its bright blue megaphone to be legal for a breakout downwards from it.  More likely it will start a new megaphone across that VWAP and continue to move sideways in this range.