How will this sideways trend on the Oil end?
Since the beginning of December we are not moving much on the Brent Oil chart. After the bullish breakout of the 53,8$/bbl resistance (green) the price is moving sideways, creating a Head and Shoulders pattern (yellow areas). Buyers are probably now wondering: “What H&S pattern if there clearly is a pennant (red lines)!?” What is the difference? Well, one of them is a trend reversal pattern (H&S) and the second one is a trend continuation pattern so the conflict here is real.
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What should traders do now? I am a trend follower so in times of a flat market like we have now, I prefer to wait for a breakout first. Traders can trade both ways so you should not stick only to the one side of the market. Are we having a H&S or a pennant right now? I would say both, that is why I would like to see how this situation will develop first.
Bullish scenario here is based on protecting the green area as a support and a breakout of the upper line of the pennant, which should trigger the buy signal. Bearish scenario, on the other hand, focuses on the breakout of the neck line (lower red, being in the same time the lower line of the pennant) and further, the green support. Second scenario is currently supported by the fact that price went under the mid-term trendline (blue) and tested it recently as a closest resistance. That is positive for sellers but is not a definite game changer.
Even if we do not have a clear signal now we should not be discouraged as this situation creates a nice opportunity for a pending order and a breakout. We should experience that soon and as a trader you do not really care what will be the direction here.
This article is written by Tomasz Wisniewski, a senior analyst at Alpari Research & Analysis