What the Charts Say About Where Oil Prices Are Going

The price of crude oil and gasoline is a topic that everyone has an opinion about. Consumers think it is too high, and check an app to see where the lowest area prices are, while producers think it is too low and huddle in places like Vienna in and attempt to boost prices. The more that we drive, the more we think about it. We even secretly hope that jet fuel prices are low when we go online to book an airplane flight. Tesla and Leaf drivers may smile when they drive past a gas station, but for most of us gassing up every week or so, this can be way more painful than charging overnight.

If we had the time, data and experience of someone like Daniel Yergin, founder of IHS CERA, we could present a more-reasoned opinion on the level and direction of crude oil prices. I got to meet Dan a number of times in the 1990s, when we both worked at firms that were controlled by Clayton, Dubilier & Rice LLC. Dan was -- and is -- a sharp thinker, but he had no appreciation for the discipline of technical analysis. Every forecasting technique has its drawbacks. Despite its shortcomings, let's check a couple of charts and indicators to see what they might add to the discussion.

In this daily bar chart of the nearby December 2017 crude oil futures contract, above, we can see that prices are above the rising 50-day moving average line, and this line is poised to close above the declining 200-day moving average. The crossing of these two averages, should it happen, will be a bullish golden cross. This mechanical or mathematical buy signal will of course be late -- and the chart shows that prices have been in an uptrend since June.

Futures contracts have a limited life span, so chartists or technical analysts have learned to link up the contracts to generate what is called a continuation contract chart. In this weekly continuation chart, above, we can see that the nearby active futures contract has gotten up to this price level or area a few times in the past couple of years. Prices just might now be poised for a clear upside breakout. Futures are above the rising 40-week moving average line. Potential resistance above the market is old and dates back to 2015.

In this Point and Figure chart of crude oil we can see the considerable base pattern that has developed since June (look for the "6" on the chart). An upside breakout from this pattern has the potential to rally to the $72 area, but resistance in the $59-$66 area will have to be overcome first.

Bottom line: Crude oil futures might be extended on the upside, and we could see a sideways or even a lower correction, but the longer-term picture in the weekly chart suggests a base pattern that is capable of propelling prices a lot higher.

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