by Pinchas Cohen
While oil remains imprisoned within a downward spiral of a falling channel, as discussed previously, yesterday’s bounce erased any losses from the previous two sessions, with a close of $48.19. This set up a strong Bullish Engulfing Pattern.
Here's a closer look…
Yesterday’s 1.67% daily advance and 2.66% daily reversal helped the price break above its hourly falling trend at 14:00 EDT, reaching a high of $48.40. At 16:00 EDT the price tested the violated downtrend line, with a low of $47.87, right on the line, and bounced. At 2:00 EDT it retested that line and bounced within the same hour, forming a hammer’s support at the low of $47.84. In the following two hours, the price experienced pressure, but it held, and as of this writing is still holding, right on the pip.
Trading the Bullish Engulfing Pattern
While the general trend’s impetus is still down, the daily two-day Bullish Engulfing Pattern—translated into a short term upside breakout of the falling channel on the hourly chart—presents a one-in-a-hundred trade of a risk-reward ratio, as the price is right on the support of the hammer. Of course it's important to understand the price may still dip lower, as it retests the broken downtrend line. At this angle, it’s at $47.65. Below that may be a good place for a short stop loss.
Oil Without the Dollar Risk
Whether one is bullish or bearish oil, many traders are currently bearish on the US dollar. Should that be the case, there's TOPIX Oil & Coal Products, a Japanese oil ETF whose base currency is the safe haven Japanese yen. You can trade up the oil-tracking ETF short-term and trade it down longer term. Either way, you’d have to buy the yen to do so.
The ETF has been largely tracking oil’s movements, displayed at the bottom of the chart in purple. The ETF’s 50 dma crossed below the 100 dma on May 24; the price must cross below the 200 dma, at 1010 yen, per this angle.
That would also break down a massive H&S top that began forming in December. The height of the pattern suggests a massive follow-up move of 11.5%.