False Breakout in Oil Leading to Breakdown?

Wednesday, September 02, 2009

Crude oil attempted a push through the $73 resistance level in mid-August. Buying waned evidenced by the tails through the level indicating a lack of conviction among traders. False breakouts can oftentimes lead to some of the most profitable trades. The technical picture triggered many long entries with the push through and these longs can provide the momentum to the downside as they dump their losing positions.

Currently the oil market sits on a rising trendline that has proven an effective trading device three times now. A break of this line will show a change in the pace of the move higher. Combined with the false technical breakout, oil may be due for a significant drop should this line fail to hold.


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