Oil is Forming a Triangle Across its Bottoming Megaphone VWAP and Up Against its 50 dma
Oil is forming what looks like a triangle pressing up hard against its 50 dma (at least on the continuous contract). An upwards breakout would target the top of oil’s bottoming megaphone before a final retrace to at least its VWAP (pink scenario).
Sometimes a false top will form at the level of the former touch on the megaphone top, leading to a retrace to VWAP before a surge to the megaphone top (purple scenario).
A downwards triangle breakout would make oil legal for a downwards breakout from its red bottoming megaphone, though oil would often megaphone in this area instead.
But you have to watch out for what may be the most likely scenario–a series of megaphones inside megaphones across VWAP that would form a triangle across it (green scenario below).
Oil Megaphone in Megaphone Triangle Set-Up
Oil in storage at Cushing is at record high levels for this time of the year.
The market appears to be in sufficient contango to make it profitable for speculators to store oil at Cushing but not on tankers. That means rising oil inventories would be visible to the market unless the contango goes up considerably.
There’s a potential melt-up set-up on the euro/melt-down set-up on the dollar that could get oil to its megaphone top. But from a poker perspective, I can’t see how the market can resist the megaphone in megaphone/triangle scenario. Push the price above the 50 and 200 dma to get everyone long, pull it back down to eat all the stops and get everyone short. Repeat.