Crude Oil Looks Great in Bond Terms
- Posted by Greg Harmon
- on February 14th, 2013
Crude Oil ($CL_F, $USO) has been running higher in a bullish pattern for a few months as I have mentioned in daily chart postings to StockTwits. But it has also recently entered the debate about the flow of funds out of Treasury Bonds ($TLT, $ZB_F) in a loud way. The ratio chart below shows the dart of a break out of a Cup and Handle Pattern. The target of this pattern is a ratio of 1.05, 22% higher than the current level. With Crude Oil at about $97 per barrel now and the Bond ETF just over 115.50 that could be accomplished at the extremes by a move in Crude to $118 per barrel
or Bonds down to 94 or about a 1% move in the long bond yield. These are lifestyle changing levels. Of course this path will likely be some where in between for both, but still this is a large potential opportunity. And there is consensus from a review of the harmonic patterns. The second chart shows that the current price action is with in the bounds of two patterns, both bearish. The first is a bearish Gartley with a Price Reversal Zone (PRZ) centered on a ratio of 0.928 or 11% higher. The second, on a continued move up is a bearish Crab with a PRZ centered on a ratio of
1.253 or 49% higher. So the harmonics have the old school Cup and Handle surrounded. It is nice when multiple methods of reviewing a chart give similar scenarios, large upside in this case. Add to these that the Relative Strength Index (RSI) is also bullish and the chart in the accumulation mode and it seems all you need is that entry trigger.
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Gregory W. Harmon CMT, CFA, has traded in the Securities markets since 1986. He has held senior positions including Head of Global Trading, Head of Product Development, Head of Strategy and Director of Equity. (More)
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