Congestion can be a useful guide to a breakout and if you get the right direction you can make money a plenty. Take a look at the light crude chart:

You can see how from October ’07 to March this year we saw oil track sideways for almost four months and then whooshka it breaks out – and to the upside like a rocket. It is like suppression – eventually it breaks out with a vengeance.

And it just so happens I see a similar pattern unfurling as I have marked with parallel lines for June this year. It is tough to see the detail but I am using price bars rather a line chart which I use in 95% of cases. A bar gives you the full extent of the compression because a day’s high and low is very much a part of the range trading bias.

The trick always is to work out which way the break will be – to the upside or downside. In the first example we can see that on four occasions price found support and eventually this base was the launching pad for a push out of the zone.

In the latest example we ideally need a few more days before we can assess which way the break may be. But I am inclined to think it is to the upside as we can see that from the Elliott projections a major trend is still in the making with a first wave five at $145 and a second wave five at $160 – heavens forbid.

So it is a good idea to combine such patterns with a confirmation indicator or the likes.

That is the theory but the reality of oil spiking to the upside is somewhat scary for consumers and economies overall.

Enjoy the ride