Crude oil is very volatile in recent weeks. Weekly movements of more than 10 pct are the norm nowadays. It is very easy to get excited as prices are moving 5 pct higher. But is now the time to buy crude oil or energy stocks?
First, let’s look at the crude oil price. Crude’s weekly chart gives us the sharpest view, see first chart.
Crude is clearly bumping into heavy resistance. The $50 area is not only double the price from crude’s lowest point this year, it also coincides with an area which has capped crude’s prices from moving higher in recent years.
The most interesting observation on this chart is how crude is building a base right below that strong resistance area. We have not seen that before. It does not guarantee that crude will break through this area, but it suggests the market is succeeding in such an attempt.
Watch crude oil at this price point: if crude goes higher from here, we see an easy ride to $60, and ultimately, to $75. The latter is not given, it is only a best case target.
In case crude oil breaks through this important $50 area, we expect energy shares to start rallying. In such a scenario Halliburton (symbol HAL), one of our favorite energy stocks, has quite some upside potential. We see an easy ride to its all-time highs at $70, a 30 pct rise from today’s price point.
Uncoincidentally, HAL has arrived a resistance, similar to crude oil. Watch whether both crude is able to rally above $50 and HAL above $55 for a confirmed breakout, and an easy 20 pct profit.