What a difference four months make.

In early February, oil was trading for $27 a barrel. That was its lowest price in 12 years.

[ad#Google Adsense 336×280-IA]Yet most analysts and financial-television talking heads expected oil to fall even lower. There was talk of oil falling to $20, or even $15, per barrel.

Since then, the price of oil has rallied nearly 90%. A barrel of West Texas Intermediate crude oil (“WTI”), the U.S. benchmark, traded at more than $51 [Wednesday].

Now, it seems like most of the talking heads are looking for the rally to continue. They’re calling for oil to reach $60, or even $80, per barrel before this rally ends.

Don’t count on it.

Looking just at the technical conditions of oil, the rally has just about run its course. Take a look at this one-year chart of WTI…

The chart shows WTI is forming a bearish rising-wedge pattern (the blue lines), and it’s rapidly approaching the apex of the wedge. So oil is about to break out – one way or the other – from this pattern.

There’s room inside the wedge for oil to push just a bit higher. Perhaps WTI can tag the resistance line at about $53 per barrel – which lines up with its high from last July. But that should just about do it for this move.

Rising-wedge patterns most often break to the downside. If that happens with oil, then the first target is the support line at the May bottom near $43 per barrel. If that support doesn’t hold, then the next target is all the way down at $35.

After a nearly 90% move off the February bottom, now is not the time to be making a big bet on higher oil prices.

The price is approaching resistance. The chart is forming a potentially bearish pattern. And from a contrarian perspective, the talking heads are almost universally in love with oil right now.

This is almost the opposite of how things looked four months ago as oil was hitting the bottom. The odds look pretty good that oil is now approaching at least a short-term top.

Best regards and good trading,

Jeff Clark


Source: Growth Stock Wire