Crude Oil Price Forecast Using Technical Analysis

There can be little question that energy costs have profound effects on all areas of the economy. Leading up to the Market top and subsequent crash in 2008, oil prices rose to unprecedented levels. It could be said that rising energy costs has as profound an impact on the economy as the credit default swap scandal.

That said, it would make sense to track and forecast crude oil prices as part of your high level market analysis process. Fortunately, it is perfect legitimate and effective to apply technical analysis techniques to oil prices, making it possible for traders to determine near term price movements in crude.

Using charting software such as stockcharts.com, traders can analyze chart patterns and apply technical indicators to predict the future direction and degree of movement. I recommend utilizing Monthly charts for determining the overall trend of crude, and weekly charts for examining chart patterns and daily charts for confirming pattern breakouts using technical analysis indicators.

One aspect of forecasting oil prices is that crude oil tends to trend, making it very easy to trade profitably. For instance, crude oil has been in a steady uptrend, creating a positive slopped support trendline at points in July, late September, and early December. This is a valid and strong trendline which suggest that crude will continue to rise.

Crude also tends to trade in channels and triangles. A break above or below these pattern lines suggests a large move is coming in crude. As of the writing of this article, crude oil recently crossed above its' 200 day exponential moving average, as well as broke out of the topside of a symmetrical continuation triangle. With little resistance overhead, it is quite reasonable that crude oil will continue to rise from it's current price of $83 / barrel, to over $96 per barrel.

As a technical trader, I usually don't spend much time talking about market fundamentals. However, there are some underlying forces that can never be ignored when doing market forecasts. Clearly the price of crude oil has had a profound effect on the stock market over the past 5 years.

You can clearly see that $70 crude oil caused the markets to slow down, eventually creating the tell tale double top. Once crude crossed $90 per barrel, the S&P 500 crashed through the 1400 support level, and the previous bull market which lasted nearly 6 years came to a screeching halt. Will it happen again? It's quite possible.

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