- WTI’s daily chart shows a Bollinger band squeeze.
- Low-volatility consolidation often ends with a violent move.
West Texas Intermediate (WTI), the North American oil benchmark, could soon witness a big move in either direction.
That’s because, the spread between Bollinger bands – volatility indicators placed 2 standard deviations above and below the 20-day simple moving average of price – has narrowed sharply due to the 1.5-month-long sideways churn in the range of $37 to $43.
Meanwhile, the Bollinger bandwidth, also a volatility indicator calculated by dividing the spread between the volatility bands by the 20-day SMA, has declined to 0.05 the lowest level since September 2018.
A prolonged period of low volatility consolidation or bull-ber tug of war often paves the way for a strong directional move.
Focus, therefore, is on the Bollinger bands, currently located at $40.22 and $42.37, respectively.
A strong move above the upper band would imply a bullish breakout and expose resistance at $49.41 (Feb. 5 low). On the other hand, a break below the lower band would signal an end of the bounce from lows below $10 observed in April and shift risk in favor of a drop to support at $34.38 (June 15 low).