The monthly chart of brent oil shows a big bullish breakout that could translate into a rally to $78.66 (July 2006 high).
Currently, brent is trading at $63.60 levels. A move to $78.66 would amount to 23.67 percent gains. Note that prices have already rallied 43 percent from the June low of $44.35.
The question is, should we trust the Bollinger band breakout? A detailed look at the monthly chart tells us the breakout is legitimate...
Monthly chart
Source: Netdania
On the chart above, print prices are bracketed between the volatility bands/Bollinger bands (BB) (Std. Dev of 2) above and below the 20-day simple moving average (MA). History shows, four out of five times the bullish Bollinger band breakout yielded a stellar rally.
July 1999 bullish BB breakout
- Gap between the Bollinger bands $9.22.
- RSI was at 60.95 and trending.
- Prices rallied 64.94 percent following the breakout.
July 2004 bullish BB breakout
- Gap between the Bollinger bands was $14.61.
- RSI was at 70.00, i.e. close to being overbought and trending.
- Prices rallied 111.06 percent to $78.66 by July 2006.
Oct 2007 bullish BB breakout
- Gap between the Bollinger bands was $31.61.
- RSI was at 71.38, i.e. close to being overbought.
- Prices rallied 62 percent following a breakout and topped out at $147.47 in July 2008.
Dec 2010 bullish BB breakout
- Gap between the Bollinger bands was $27.95
- RSI was at 61.14 and trending.
- Prices rallied 34.56 percent following a breakout and topped out at $126.88 in April 2011.
Feb 2003 failed bullish BB breakout
- Gap between the Bollinger bands was $13.97.
- RSI was at 64.68 and trending.
- But the breakout failed. In the following month (Mar. 2003), prices closed well below $30.31 (Feb. 2003 low).
Let us see if the latest breakout is similar to the ones discussed above...
Oct 2017 bullish BB breakout
- Gap between the Bollinger bands was $18.85.
- The RSI was at 55 (bullish, but lowest when compared to what it was at the time of past BB breakouts). It only validates the argument that there is plenty scope for a rally.
View - So there is every reason that the historical pattern would work this time as well, i.e. prices could easily rally to $78-$80 levels next year. The bullish view or the bollinger breakout risks failing if prices end this month below $55.05 (previous month's/breakout month's low).
The other pattens on the monthly chart also highlight the strength in the market.
- Oil bottomed out in Feb 2016 and since then has been rising on the back of a bullish-price RSI divergence.
- Also, a bearish crossover between the 50-MA and 200-MA happened last month. The crossover is a lagging indicator and often works the other way round in the short-term.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended Content
Editors’ Picks
EUR/USD steady below 1.0800 after US PCE meets expectations
EUR/USD remains depressed below 1.0800 after soft French inflation data, amid minimal volatility and thin liquidity on Good Friday. The pair barely reacted to US PCE inflation data, with the Greenback shedding some pips. Fed Chair Jerome Powell set to speak ahead of the weekly close.
GBP/USD hovers around 1.2620 in dull trading
GBP/USD trades sideways above 1.2600 amid a widespread holiday restraining action across financial markets. Investors took a long weekend ahead of critical United States employment data next week. Fed Chair Powell coming up next.
Gold price sits at all-time highs above $2,230
Gold price holds near a fresh all-time high at $2,236 in thinned trading amid the Easter Holiday. Most major world markets remain closed, although the United States published core PCE inflation, the Federal Reserve’s favorite inflation gauge.
Jito price could hit $6 as JTO coils up inside this bullish pattern
Jito (JTO) price has been on an uptrend since forming a local bottom in early January. Since then, JTO has revisited the key swing point formed in early December, suggesting the bulls’ intention to move higher.
Key events in developed markets next week
Next week, the main focus will be inflation and the labour market in the Eurozone. We expect services inflation to be impacted by the easter effect, while the unemployment rate to be unchanged.