Oct 27 (Reuters) - US crude oil prices are holding near the top of this year's range. Trading during the Iran war suggests lasting gains from here will be hard to come by, and technical analysis points to possible losses.
Technical analysis uses charts of past price moves to work out where a market might go next. Over the years, analysts have identified recurring chart patterns that tend to come before gains or losses.
One of those patterns is called a gap. Gaps form when prices jump or drop so fast that they skip over a range of price levels, leaving an empty space on the chart.
They often show up between one day's closing price and the next day's opening price. Many analysts believe markets tend to return eventually to fill a gap, meaning they trade back through the skipped range.
Volatile trading during the Iran war left several gaps on the chart of the US oil price, which is traded as West Texas Intermediate.
Most have since been filled, but at least two remain partly or completely open. Both sit below current prices, which suggests the market's path of least resistance may be down. That raises expectations that they will eventually be filled.
Analysts also look for levels that act as support and resistance. Support works like a floor that can stop prices from falling. Resistance works like a ceiling that can cap gains.
Both can become price targets, meaning levels where traders expect the market to head or pause. Gaps can serve as support, resistance and targets too.
The gap closest to the market — which has been trading around $100 — lies between the August 28 close of $83.40, according to data supplied by LSEG, and the August 31 open of $84.69. That is roughly $15 below current prices.
A drop to that area would put the market back inside the empty space left by the August jump.
The second gap is larger, but it has also been partially filled. It lies between the February 27 close of $67.02 and the March 2 open of $75.00. This was the market's opening reaction to the war, when prices leapt over an $8 range in a single step.
A fall that far would take oil back to levels last seen before the conflict began.
One cautionary note: Gaps are not guarantees. Markets can leave gaps open for long periods, and a prolonged conflict or supply disruption could keep crude prices elevated.
But with oil stalling near the top of its yearly range, the unfilled gaps below give sellers a clear set of targets.
What the chart shows:
US crude is trading near the top of this year's range, around $100
Two unfilled gaps lie below the market: $83.40-$84.69 and $67.02-$75.00
Markets often return to fill gaps, so those zones could act as downside targets
(Mapping the Market is a daily column written by Reuters journalists. The commentary is based on a technical analysis of financial charts, which helps assess the likelihood of future price moves but does not guarantee the outcome. The column does not constitute investment advice or trading recommendations. )
Robert Fullem is a Reuters market analyst. The views expressed are his own. Editing by Burton Frierson
