West Texas Intermediate (WTI) crude oil completed a bullish inverted head-and-shoulders pattern today by breaking through the slightly down-trending resistance level at $52 that made up the neckline of the reversal pattern.
The head of the pattern formed on Christmas Eve and the day after Christmas when oil hit its lowest price point – $42.36 per barrel – since mid-June 2018. The left shoulder formed in late-November and early-December, while the right shoulder formed during the past week.
The pattern is slightly lopsided with the left shoulder a little larger than the right, but price patterns like this are rarely perfectly symmetrical.
Seeing oil prices rise provides bullish fundamental confirmation that the global economy is still strong. Oil prices go up when supply decreases or demand increases or both. While there has been some pressure applied to oil supply lately by Saudi Arabia’s announcement it would be pumping less oil, the United States has largely offset that threat by continuing to extract ever-larger amounts from shale.
Instead of being supply driven, it looks like the latest breakout is demand driven. When the economy is growing, demand for oil tends to increase.
Note: This increase in the price of oil is not only providing a positive economic signal that is helping lift the stock market higher in general.