The chart below shows crude oil prices (black line) from October last year to date. You can see that it’s been accelerating away from its 50-day moving average (blue line). In itself, this is a bullish sign - it confirms a strong uptrend.
But there’s something even more important here from a chartist’s point of view. After failing to do so twice in the last two months, the oil price has finally broken through resistance at the $55 a barrel mark (red line) for the first time since November last year.
That’s a sign that oil "bears" have given up, allowing the price to move higher.
Crude oil pushes through the $55 mark
Source: StockCharts
This is good news for energy stocks. After taking a pummelling towards the end of last year as oil prices collapsed, they are attracting investors again. Energy stocks ranked third in a survey last month by financial magazine Barron’s, asking money managers which stocks were likely to perform best for the next 6-12 months.
Oil prices are very likely to increase on worldwide oil production cuts, an easing recession and demand rising again. Don’t forget that early this year, oil was trading at $32.70 a barrel. At the current price of $59.7, that’s a 82.5% gain. Barclays thinks oil prices could hit $71 per barrel - this would be a further 19% rise.
While small pullbacks from the rally should be expected after such a powerful run, the overall picture for oil prices looks very promising indeed.
Editor’s note: The key to success for investors will be to find companies that can benefit from the rapid rise in oil prices that will occur as demand rises. To find out the best ways to play the coming oil price rally, click here.
P.S. If you enjoyed this article you can find out more about our free email, The Right Side by clicking here.
