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Oil Rally to Continue, Next Target $125: Charts
CNBC.com | March 18, 2012 | 11:45 PM EDT

The NYMEX weekly oil chart has developed a mid-trend inverted head and shoulder continuation pattern. This suggests that the uptrend of the past few weeks has a high probability of continuing. The head and shoulder pattern is also used to calculate price targets using a measured move.

Head and shoulder patterns are normally considered reversal patterns occurring at the turns of major trends. This is the way they were used in 2008 and again in 2009. When the patterns occur in the opposite direction to the primary trend, they are usually continuation patterns. The pattern looks out of place.

The inverted head and shoulder pattern is most commonly associated with the end of a downtrend. When the pattern appears in the middle of an uptrend it is unusual and it has different significance. It suggests a continuation of the existing long-term trend and not a trend reversal.

The left shoulder of this pattern developed around the low near $91/barrel in July 2011. The inverted head of the pattern develops around the cluster of lows near $78 in October 2011. The right shoulder is created by the rally and retreat behavior near $94 in December 2011.

These patterns of retreats and rally rebounds combine to create the inverted head and shoulder pattern that follows the fall from the $114 high in April 2011.

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