Crude Oil Has 44.7% More Upside Potential For A Big Gap Fill!
There is a lot of extremely interesting action in crude oil right now. Here on the weekly futures chart, you can see that CL printed a huge bullish engulfing candle last week, as it reacted to major support at the bottom of the falling wedge pattern (in blue.) As I mentioned in last week's crude oil analysis, crude was deep in oversold territory on the weekly RSI (green circles) and due for a relief rally.
So how high can crude go from here? Well, one of the most important things to note on this chart, to help us answer that question, is the big gap at 41. For those who don't know what a "gap" is, it's literally a gap in price on the graph. Since this is a weekly chart, that happens when a week ends at a certain price, and then begins the next week much lower (in this case.) In other words, a gap is the difference between the open price and prior close price, where no trading activity takes place.
Gaps that big are basically nonexistent on the weekly chart. I looked back to the beginning of the crude oil futures in 1983, and I couldn't find a single gap that was this large. Also, ALL gaps on the weekly CL futures chart have been filled. So, what does that tell us? It tells us that there is a damn good chance that at some point, the gap at 41 is going to get "filled," meaning price will eventually trade within that range. From the weekly close of 28.34, that's about a 44.72% increase, just to fill the gap at 41.
So, that's a lot of upside potential. So, from that perspective I don't think it's too late to get into a bullish oil trade. However, that also depends on where price opens on Monday. Keep in mind that crude has only printed one bullish weekly candle so far, and is JUST NOW beginning to recover from the oversold region on the weekly RSI (bottom graph.)
Taking a step back from the gap and looking at the big picture, we can see the huge falling wedge pattern that crude oil is trading in. Falling wedges are usually bullish patterns, which typically produce upside breakouts. Crude has just reacted to the BOTTOM of this formation. If it eventually produces an upside breakout, I think crude could reach new all time highs. That may seem like a wild and extremely unlikely thing to say, and admittedly, it could take several years for that to materialize. However, that is what we potentially have here on the chart. All we need to see, is a breakout ABOVE the blue falling wedge formation to confirm it.
I believe that throughout the next decade, commodities could prove to be fantastic investments, and that includes oil. From a fundamental standpoint, I think the monetary policies of global central banks will eventually produce significant inflation. I've seen many economists speculate that real inflation may not materialize for several years, and while I'm not sure of when it will come, I think central banks have made it clear that they're going to print money indefinitely. We've seen QE1, QE2, and we were told that QE3 was the end of the quantitative easing program. Now, here we are with QE4, which is exponentially more aggressive than the preceding measures. The Fed has even stated recently that they would support markets with QE "indefinitely." You can't print indefinitely, at this scale, without creating inflation — and what will "inflate" in that scenario? Commodities prices! I think the falling wedge pattern on this chart, could be forecasting that exact outcome. We simply need an upside breakout to confirm what is undoubtedly building behind the curtains.
I'm The Master of The Charts, The Professor, The Legend, The King, and I go by the name of Magic! Au revoir.
***This information is not a recommendation to buy or sell. It is to be used for educational purposes only.***
-JD-
So how high can crude go from here? Well, one of the most important things to note on this chart, to help us answer that question, is the big gap at 41. For those who don't know what a "gap" is, it's literally a gap in price on the graph. Since this is a weekly chart, that happens when a week ends at a certain price, and then begins the next week much lower (in this case.) In other words, a gap is the difference between the open price and prior close price, where no trading activity takes place.
Gaps that big are basically nonexistent on the weekly chart. I looked back to the beginning of the crude oil futures in 1983, and I couldn't find a single gap that was this large. Also, ALL gaps on the weekly CL futures chart have been filled. So, what does that tell us? It tells us that there is a damn good chance that at some point, the gap at 41 is going to get "filled," meaning price will eventually trade within that range. From the weekly close of 28.34, that's about a 44.72% increase, just to fill the gap at 41.
So, that's a lot of upside potential. So, from that perspective I don't think it's too late to get into a bullish oil trade. However, that also depends on where price opens on Monday. Keep in mind that crude has only printed one bullish weekly candle so far, and is JUST NOW beginning to recover from the oversold region on the weekly RSI (bottom graph.)
Taking a step back from the gap and looking at the big picture, we can see the huge falling wedge pattern that crude oil is trading in. Falling wedges are usually bullish patterns, which typically produce upside breakouts. Crude has just reacted to the BOTTOM of this formation. If it eventually produces an upside breakout, I think crude could reach new all time highs. That may seem like a wild and extremely unlikely thing to say, and admittedly, it could take several years for that to materialize. However, that is what we potentially have here on the chart. All we need to see, is a breakout ABOVE the blue falling wedge formation to confirm it.
I believe that throughout the next decade, commodities could prove to be fantastic investments, and that includes oil. From a fundamental standpoint, I think the monetary policies of global central banks will eventually produce significant inflation. I've seen many economists speculate that real inflation may not materialize for several years, and while I'm not sure of when it will come, I think central banks have made it clear that they're going to print money indefinitely. We've seen QE1, QE2, and we were told that QE3 was the end of the quantitative easing program. Now, here we are with QE4, which is exponentially more aggressive than the preceding measures. The Fed has even stated recently that they would support markets with QE "indefinitely." You can't print indefinitely, at this scale, without creating inflation — and what will "inflate" in that scenario? Commodities prices! I think the falling wedge pattern on this chart, could be forecasting that exact outcome. We simply need an upside breakout to confirm what is undoubtedly building behind the curtains.
I'm The Master of The Charts, The Professor, The Legend, The King, and I go by the name of Magic! Au revoir.
***This information is not a recommendation to buy or sell. It is to be used for educational purposes only.***
-JD-
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