Weekly Chart

The chart above is FXCM's proxy for Brent, UKOil, on a weekly scale. From the mid-August low to the mid-October high, UKOil appreciated around 32%. We have used this impulse move for our reference trough (T) and reference peak (P). Since reaching P, UKOil has retraced to the 38.2% Fibonacci level (black horizontal). This level is currently supporting price and may be used as a platform to move higher. If so, this will chart a higher trough (HT?); a close above $82 (aqua ellipse) will form a potential swing low.

Daily Chart

If the weekly swing low charts as above, the daily UKOil chart makes for interesting analysis. The weekly swing low would coincide with the completion of a bullish flag continuation pattern on the daily (aqua parallel lines). This is a subtle but important point, a pattern is not a pattern until it completes. I.e. to confirm the bullish pattern, the flag needs to breakout.

Flags tend to form mid-trend as profits are banked. Thus, theory suggests that flags fly at half-mast. I.e. a breakout suggests a continuation in the previous trend direction and the target may be measured based on the trend leading into the pattern. This is referred to as a measured move and gives a target of $104.

Measured moves are theoretical. They may or may not be achieved. As such, I've indicated it using the dashed aqua horizontal. However, it does suggest that UKOil's potential is to the bullish side until proven otherwise.

Short-Term Analysis

The left chart shows the daily time frame. We note that the heiken ashi candles, a trend following indicator, have turned blue and moved from the pullback area to neutral. This is a positive move and coincides with the RSI moving to the bullish side of the oscillator (blue square).

The right chart shows the hourly time frame. Short-term momentum is waning, as seen by the weakening in the stochastic (aqua ellipse). Moreover, the trend following indicators looks to be crossing down (green ellipse), as the short-term chart suggests a pause. The gray central pivot (P), is the underlying support and is an area of interest. It may provide the basis for buying into the short-term dip. The hourly EMAs and stochastic need to turn bullish, to signal that short-term bulls are coming back into UKOil. If these triggers are charted, the stochastic moving back into 80, and holding that level will contribute to the daily flag breakout and weekly swing low.

Conclusion

The above technical picture looks bullish. To play out, market demand needs to reassert after the recent pullback. We note the coordination to release oil reserves. However, the volume here may only offer a temporary respite. As detailed in a previous article, supply is not the only contributing factor to the high oil price. There is a meaningful demand component as well. Moreover, if OPEC+ responds to the release of oil reserves by scaling back on its production schedule, the plan will have backfired.