Oil Price Channel

Oil is Working its Way Neatly Down the Blue Price Channel

Oil is Working its Way Neatly Down the Blue Price Channel

Oil is working its way neatly down the blue price channel. It’s either maxing out the channel waves before starting a megaphone bottom (green scenario) or its in the middle of a falling wedge (purple) or falling megaphone (orange) bottom already.

We’ll know which it is by when it first breaks the channel top.

Oil's Next Move Could Be to the Orange Megaphone Top or Oil Could Return to VWAP at 50 and Start a New Megaphone There

Oil’s Next Move Could Be to the Orange Megaphone Top or Oil Could Return to VWAP at 50 and Start a New Megaphone There

Oil has already done its job of confirming the orange megaphone by taking out the August 2, 2016 low.  It’s next move could go all the way for the orange megaphone top.  But oil could also return to the orange megaphone VWAP at 50 and start a new megaphone there.

If oil is going to go for the orange megaphone top, it will likely attempt a megaphone across 50 that breaks out in a Sornette melt-up set-up without a retrace to VWAP.

A series of megaphones inside megaphones across 50 would imply that oil is turning the inverse head and shoulders on the chart into either an inverse head and shoulders with a triangle right shoulder or a large triangle that will eventually break out downwards.

The inverse H&S with a triangle right shoulder is more likely, and would lead to a large move up on breakout.

Potential Oil Price Channel

A New Channel Low Would Confirm the Red Price Channel

A New Channel Low Would Confirm the Red Price Channel

Oil is trying to confirm a new price channel (red in chart above). If the channel confirms, oil will be in its critical decision wave for starting a bottom vs breaking out into a melt-down.

Oil Inverse Head and Shoulders with Megaphone Right Shoulder

Oil Inverse Head and Shoulders with Megaphone Right Shoulder

The green and purple scenarios would be pretty much the same as in this daily chart from a few days ago.  The green scenario could bog down at the red megaphone VWAP to form a triangle right shoulder instead of heading straight up through VWAP to the megaphone top.

The longer oil is stuck moving across 50, the bigger the potential move after it finally breaks out.  There’s a long-term Neely set-up for a move back to oil’s all-time high so I expect the churning across 50 to last a while.

Oil Update

Oil Inverse Head and Shoulders with Megaphone Right Shoulder

Oil Inverse Head and Shoulders with Megaphone Right Shoulder

Oil continues to work on the right shoulder of its inverse head and shoulders bottom (blue neckline).

Oil is working on a megaphone or triangle right shoulder on the formation.  Because the last trip to the bottom of the red megaphone reversed so close to the previous red megaphone low, oil is likely to reverse on this bounce to the megaphone VWAP to put in a lower red megaphone low or even a double bottom for the inverse H&S (green scenario).

If instead oil starts a new megaphone across VWAP, it’s likely forming a triangle right shoulder (purple or orange scenario).

Oil could also put in a Sornette set-up at VWAP for a fast swing back up to the blue neckline before a return to VWAP (not drawn).

Oil could also morph the inverse H&S into a triangle that breaks out downwards into a final low for the correction off the 2012 highs, but that is less likely.

Contango vs Backwardation

Basically, oil is in contango (see post on contango and backwardation), and its happy place right now is 50ish. Goldman is warning that if oil can’t move into backwardation double quick, it’s likely to have a hard move down (green scenario).

XLE Megaphones with Potential Melt-Up Set-Up

XLE has a Potential Sornette Melt-Up Set-Up on its 60-Minute Chart

XLE has a Potential Sornette Melt-Up Set-Up on its 60-Minute Chart

XLE has formed a beautiful megaphone inside a megaphone on its 60-minute chart.  Even better, XLE has formed a potential Sornette melt-up launch pattern across VWAP of the red megaphone.

An upwards breakout through the navy blue megaphone VWAP, typically with a double bobble as the orange megaphone fails to retrace to VWAP, would target the red and blue megaphone tops.  The move would usually be fast (green scenario).

The light blue scenario represents a series of megaphones inside megaphones across the navy megaphone VWAP.  We’d usually see this is a triangle right shoulder is forming on the potential inverse head and shoulders bottom on the daily chart (see below).

The purple scenario represents a top before a collapse back to the 2016 (see below).

 

XLE Inverse H&S Bottom with Right  Shoulder Triangle vs Neely Set-Up

XLE Inverse H&S Bottom with Right Shoulder Triangle vs Neely Set-Up

XLE formed a price channel on its move down from the June 2014 high to the January 2016 low.  That kind of move is a Neely set-up for a partial retrace then retest of the low before a melt-up back to the all-time high (purple scenario).

The green scenario on the daily chart is a triangle right shoulder on the inverse H&S before a breakout to retest the all-time high.  It’s possible but unlike (because of the megaphones on the 60-minute chart) that XLE will break out of that inverse H&S without a triangle right shoulder.

The Neely set-up is the favorite longer-term.