Crude Oil Price Forecast: Bull Pennant Signals Breakout Potential

Bull Pennant Forms Near Key Moving Average Support

Crude oil has been consolidating near the support of the 200-day and 20-day averages for about 10 days. It takes the form of a bull pennant (small symmetrical triangle). In addition, support has been around the prior swing high at $62.39. Volatility has been contracting as the price range tightens. This suggests that demand is building in preparation for a continuation of the bullish reversal that began with recovery of the 50-day average, downtrend trendline, and double bottom breakout in January.

20-Day Average Holds as Trend Support

Since then, the advance has been steady, having established the 20-day average is key trend support. It was successfully tested as support last Tuesday, which was followed by clear bullish behavior since the day ended positively and near the high of the day.

Breakout Levels and Upside Targets Defined

A sustained recovery of the 200-day average suggests higher prices, while price compression prepares for a breakout. The first breakout signal of the pennant formation triggers above Monday’s high of $64.93. A second confirmation signal is above $65.59, and finally, on a move to a new trend high above $66.57. Since the 61.8% Fibonacci retracement will be exceeded for the second time on a rally above Monday’s high, the 78.6% retracement area at $67.83 becomes a potential target. But first, there is a 127.2% projected measured move target at $67.02, along with a downtrend line. Note that the trendline is from an earlier angle that was subsequently moved to the May swing high. But since the original trendline is parallel with two anchor points on the bottom a channel, it remains as a guide.

Weekly Indecision Signals Momentum Compression

Price behavior within the pennant may be easier to visualize on the weekly chart. Last week showed indecision as it was inside the prior weeks range and ended with a doji. The doji shows the opening and closing prices of the period being almost the same. There was no progress in the price during that week. This week is on track to possibly end as a second inside week. This would be a double inside week and further indicate the potential for a sharp pick up in bullish momentum.

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