Triangle in Crude Resolves to the Upside

By: Bruce Zaro | Sat, Mar 4, 2006
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In technical analysis, triangle patterns are like a traffic bottleneck; when 3 lanes of highway are reduced to 2 and then 1, driving space simply gets pinched down to a trickle. Relief comes when motorists are able to pass through the constriction and traffic opens up as everyone stomps on the gas.

The somewhat rare occurrence of a triangle stock chart pattern can be viewed in a similar manner. In this case, the bottleneck results from a tightening battle between buyers and sellers, one that gets so tight that it is almost literally coiled to break loose. Thus, a triangle forms on the price charts, leading to a technical condition where something almost has to give. As I began this commentary yesterday, an un-resolved short-term triangle pattern had formed in the continuous crude oil contract.

I started to write that under this scenario, an upside break out would occur at $63.50 and would likely lead to testing of the bearish resistance line at $66.50, possibly even the chart high near $70 seen in January. A downside break, on the other hand, held the potential to really surprise, implying a potential target as low as $47 per barrel.

By briefly reaching above $63.50 this morning, however, that triangle has been resolved to the upside, as can be seen in the Point & Figure chart below:


A number of technical challenges remain overhead for oil, so I don't suspect it will be making a new high on this move. At the same time, quiet though this morning's breakout was, the chart shouldn't be ignored, and it suggests that oil may once again make a move toward its highs in the near future.

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Bruce Zaro

Author: Bruce Zaro

Bruce Zaro
Chief Technical Strategist
Delta Global Advisors, Inc.

Over his 20-year investment career, Mr. Zaro has become a highly-regarded technical analyst who runs private client portfolios at Delta Global. For the last 3 years, he served as Managing Director of Granite Wealth Management outside of Boston and spent nearly 15 years prior as a Vice President at Gage Wiley & Co. His current firm is full-service, but specializes in providing international market access as well as alternative investment strategies.

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