Oil Search at the high side of broadening top formation

Good morning to you all – we have seen the US markets climb again once more on the Friday session so it feels a little unusual to be delivering a bearish setup to you but this may well be worth a spot on the watchlist. The chart of OSH has shown the price basically ranging for the last 4 or so months – the difference in this case is that the price is setting higher highs and lower lows so it is actually broadening rather than finding parallel support and resistance. Typically this type of pattern is seen as a little bit trickier to trade because you have less clarity as to when a breakout is occuring (though you may not feel this way). In this case though the range between the support and resistance zones would easily be significant enough for a profitable trade on the short side.

As you can see here the price has now reached the upper echelons of the formation. Interestingly you can see that the price has found resistance at around the $7.26/7 level on 2 closely spaced occasions – not exactly a tweezer top but in any case a resistance level that would be notable for placement of stop loss orders.

If the trader goes short around these levels (some may wait for a new peak to have been formed around the most recent high) then there are the highs of about $7.27 and the resistance line of the formation that are potential stop placement areas – I think that for just a small amount more in terms of stop magnitude the placement would be outside the pattern.

The other consideration is the potential internal support level that price has formed at around $7.10. This is a level that may see traders taking care around which would mean that to be more conservative the trader may choose to wait until price is on the south side of this level before acting – otherwise, trailing of stops at least until price breaches this level is probably worth considering.

All the best,
Dave.

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