Crude Oil : Big Move Coming??

The amateur technical chartist (ATC) within me has taken control and come up with something. I am sure a simple chart has been converted into something really complex and exotic. But that is what amateurs do, right?? 

               Source : Bloomberg

As can be seen, ATC has managed to draw three channels in the weekly chart of Brent Crude, Yellow, Purple and White. 

Brent has spent the maximum time in the Yellow channel.It has huge deviation on the upside in 2008 and on the downside in 2009. But after having spent some time in the Purple channel, it has managed to get back to the Yellow one.

While it spends time within the Yellow channel, Brent has managed to move within the White Channel for almost the last one year. 

In this one year Brent has broken the lower end of the Yellow channel thrice and every time it has not sustained below the channel.It has taken support at the lower end of the White channel and bounced back into the Yellow Channel, on all occasions except the last where it turned around halfway through the White channel. Purple channel supported the move.

As ATC sees it, Brent is getting squeezed between the lower line of the Yellow channel, which has a positive slope and upper line of the White Channel with a negative slope.

It has been a year since Brent has traded in the range of 100 to 115$, with one exception where it went past 120$.

This one year squeeze will in all probability lead to a big move. Direction - Up or Down?? ATC knows charts dont tell which direction they are going to take. So he goes on to make a guess.

 

In the last one year, every time Brent has tried to move below 100$, it has bounced back helped by channels as elaborated above. ATC applies the theory of "path of least resistance", and comes up with odds favouring a move on the upside with the first target being 125$.

ATC does not bother about fundamentals because that gives a prejudiced reading of the chart. The fundamentals are swinging wildly between a slowdown in Europe/China, saber rattling by Iran and limited spare capacity within OPEC.

Markets factor in all the available news and events, and tell the story through the charts. It is up to us to read it properly. 

I can only hope that ATC has done a decent job of reading it!!