In the past 10 months, the price of oil has gone up a lot. In fact, it did a whooping 66%! Sure, there may be fundamentals behind it, but nothing can go forever, not without retracements at least. Although, I don't know what the price of oil will in a year or two, I do see two major signs that point to, at the minimum, a temporary correction.
1. Rising Wedge
When this shape appears at the end of a massive run-up, it often means that the buyers are running out of steam. The buyers are trying to push the price up, as indicated by the rising support and resistance line, but the rate the price goes up is getting slower and slower since the resistance is less sloped than the support. Soon, the price will be squeezed into an apex, and the market has to make a critical decision of whether to break up or break down from the wedge. However, it is much easier to break down as it can be done by just maintaining the price (going sideways). Like any other triangle patterns, there will often be continuation as people realize key supports have been broken.
2. MACD and RSI Divergence
The price makes a higher high, but the RSI and the MACD fails to make a higher high. This is a sign that the rate of increase is starting to slow down after a massive price rise, signaling a loss of momentum by the bulls. Soon, the bulls need a retracement to recoup before starting another rally
1. Rising Wedge
When this shape appears at the end of a massive run-up, it often means that the buyers are running out of steam. The buyers are trying to push the price up, as indicated by the rising support and resistance line, but the rate the price goes up is getting slower and slower since the resistance is less sloped than the support. Soon, the price will be squeezed into an apex, and the market has to make a critical decision of whether to break up or break down from the wedge. However, it is much easier to break down as it can be done by just maintaining the price (going sideways). Like any other triangle patterns, there will often be continuation as people realize key supports have been broken.
2. MACD and RSI Divergence
The price makes a higher high, but the RSI and the MACD fails to make a higher high. This is a sign that the rate of increase is starting to slow down after a massive price rise, signaling a loss of momentum by the bulls. Soon, the bulls need a retracement to recoup before starting another rally