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Heating Oil Forming a Bullish Pattern


December heating oil (HO) is forming a bullish pattern, and even a slight rise in the price will trigger a long trade.

The pattern begins by looking at the strong rally between January and June. That rally saw the price increase 56%, and indicates an overall uptrend.

From the June high at 1.6316 the price pulled back to 1.3124, which is slightly more than a 50% retracement of the advance. A 50% to 60% retracement is typical after a rally like that.

Off the pullback low the price rallied back above 1.57 showing upward momentum (but not quite strong as the selling momentum earlier). The next drop has stalled just above 1.40, well above the prior 1.3124 low. Stalling near 1.40, twice, shows that selling momentum is slowing. Given the overall uptrend, this is a potential entry point into a long position.

Figure 1. December Heating Oil, Daily Chart

Consider a long if the price rallies above 1.4653. That will break a consolidation that has formed above 1.40, potentially signaling another move to the upside. A stop loss is placed slightly below 1.40.

The longer-term target for the trade is 1.90, based on the strength of the earlier rally and the depth of the recent pullback. A shorter-term target is near 1.64. That is based on the approximate height of a recent triangle pattern, added to the breakout point of the triangle. With resistance near 1.60, that's an alternate exit for a shorter-term trade. Even with the smallest target, the reward-to-risk on the trade exceeds 2:1.

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