In January 2015, WTI crude oil futures broke below its long-term trendline that dated back to the 1998 low of $10.65 per barrel after an eight-month sell-off that took crude from above $100 per barrel to below $50. On the last trading day of January 2015, crude oil rallied close to $3 in the last hour of trading to settle above that long-term trendline. We made a note of it at the time, which seemed to confirm the importance of this level.
The importance was confirmed during the next several months as the price of crude oil became attracted to this level, especially at month’s end (see “Crude breakout 1,” below).
Finally, in July 2015, the bears won that battle and crude settled below the trendline, which led to continued weakness, but by the end of August, crude had a furious rally to settle once again above the trendline. After grappling with this major pivot during the next two months, crude took another major downturn (see “Crude breakout 2,” below).
By May 2016, crude had rallied and tested the floating resistance level once again.
The trendline has served as a guide for the crude oil market until its recent bullish breakout. But some technicians prefer to base their analysis on closing prices. When we draw the trendline from the 1998 low matching the monthly closing prices we get a slightly different trendline that can also be helpful. The closing trendline (red line) served as resistance after crude’s initial rebound from the 2014-15 sell-off. That level is roughly $70.50 per barrel and has been breached in May, but not on a closing basis (see “Crude Breakout 3,” below).
If crude can settle on a monthly basis above $70.50, it would signal a much larger breakout. However, another trendline serving as resistance looms from the 2008 high to the high prior to the 2014 sell-off. Crude oil could test that level (currently in the upper $70 range) if it continues to rally. The upper trendline and long-term monthly closing trendline will intersect in May 2019 around $74.50. Expect a battle around those two trendlines as crude nears month end.