STOXX Europe 600 Oil & Gas Index and trendlines

In September 2018, I reported a price junction point on the Stoxx Europe 600 Oil & Gas Index that was worth considering. The reasoning was supported by the observation of the prices of the index with respect to the position of its historical trendlines. Trendlines are one of the simplest tools used in Technical Analysis, and generally one of the most effective when a chart is analysed. When a price is very near to an important trend line, touched several times, this requires our attention.

Looking to the last twenty years of the Stoxx 600 Oil & Gas Index, we can connect the historical peak of July 2007 (1) and the lower high of May 2008 (2) projecting the down trendline from there.

We can see that a new price peak almost touched the trendline in July 2014 (3), but the most interesting situation developed between May and October of last year, where a real congestion area was created around that trendline (4). After the short-term fall of the end of 2018, the price is returned in the previous congestion area level touching the downtrend line for the fifth time (5), with the MACD up crossing the zero line (a).

The prices of the index are obviously related to the price of oil. It is interesting to note, as we can see from the following chart, that the 50-periods correlation between the index and the Brent futures is at its highest since 2015 (see the bottom frame in the chart).

Looking to the weekly Brent chart from 2016, we can note that the MACD is reaching the zero line (c), and the price is rising and reaching a critical area: from a pattern point of view, the price of Brent may be about to form the upper part (a) of the right shoulder of a head and shoulders pattern. In addition, in the recent past, in that price area we can see several points of support and resistance (b). It is therefore necessary, in order to have a continuation of the short-term trend, that prices have enough strength to be able to definitively exceed the level above USD 71/72.

Mario Valentino GUFFANTI CFTe – SAMT Vice President – Swiss Italian Chapter –

Disclaimer: the above article is for general information and educational purposes only.  It is not intended to be investment advice.  Seek a duly licensed professional for investment advice.