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CHART ANALYSIS


Is Crude Starting Another Upmove? (Bullish Wedge)

05/27/05 09:46:58 AM
by Ashwani Gujral

Crude oil seems to have completed its decline in the last few weeks in the shape of bullish wedge. It seems to have found support at $48. If it sustains the $51 level, it could head to the $61 level.

Security:   CL
Position:   Buy

The price of crude is a key variable in the global growth projections. Similarily, a bullish wedge in an ongoing uptrend can be a key indicator of that trend continuing. A bullish wedge is a downward-sloping triangular formation in an uptrend. A sustained breakout above the upper line of this pattern indicates that the price has resumed its journey up. A key feature of the bullish wedge is that the range of the bars narrow and volume slows down as the bullish wedge is about to break out.

Figure 1: Crude Oil Daily Chart
Graphic provided by: eSignal.
 
On the daily chart (Figure 1), a bullish wedge is seen to be forming. The wedge takes support twice at the 48 level and then breaks above the upper boundary of the wedge. A measurement of the target is made by taking the previous significant rally, which here is $13.50 from the $44.50. Adding $13.50 to $48, a target of $61 is achieved. In addition, we can see the seven-day relative strength index (RSI) has given a trendline breakout. Taking both signals, it seems likely that crude will move higher.

Figure 2: Crude Oil Weekly Chart
Graphic provided by: eSignal.
 
On the weekly chart (Figure 2), the same pattern is visible. A 50-week moving average is drawn on the chart to confirm the trend. It shows that crude has held all major supports in its decline and its long-term bull market is intact. A check of the average directional movement index (ADX) shows a value of 15.41, which shows the lack of a strong trend and small swings. As the ADX rises above 20, it will be key to watch a strong trend develop on the weekly chart, which may support the upmove further.



Ashwani Gujral

He is founder of AGIP Securities Pvt. Ltd. which offers money management services, live chat rooms (during market hours) and independent technical analysis consultancy. The company has a big media presence from the likes of CNBC, NDTV Profit, and ZEE Business.

Title: Chief mkt strategist
Company: AGIP Securities
India
Phone # for sales: 9871066337
Website: www.ashwanigujral.com
E-mail address: contact@ashwanigujral.com

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