Crude Oil Price Forecast: Hammer Reversal Challenges Bear Flag Resistance

Crude oil broke down from a bear flag pattern and rising trend channel on Tuesday. However, support was quickly found on Wednesday around the 50-Day MA with the day’s low of $65.63. Also, that low was a successful test of support around an AVWAP level from the April trend low. It is important to recognize that the AVWAP clearly showed support in April following the sharp decline from the June peak at $74.44.

Wednesday ended with a bullish hammer candlestick pattern that triggered today, Thursday. If the low holds, a higher swing low will be established, along with the first pullback to test support around the 50-Day MA since it was reclaimed in early-June.

Bull Hammer Breakout Triggers

On Thursday, crude oil triggered a breakout of the hammer and rallied to test resistance around the lower line of the bear flag pattern, which was a support line before. The one-day bullish reversal hit a high of $67.55, at the time of this writing and looks likely to close in a similar position. That would confirm the hammer breakout with a daily close above Wednesday’s high and at the top of the day’s trading range. Trading continues near the highs of the day so it is possible a new high will be reached before today’s session ends.

Rising in Resistance Zone

The 20-Day MA, which represents potential resistance and is now at $67.69, is set to converge with the lower boundary line of the flag. Notice that the 20-Day line (purple) was recognized as resistance over many days the past couple of weeks as the flag formed. When two or more indicators identify a similar potential resistance zone, either signs of resistance are seen or an upside breakout triggers.

A bull breakout above today’s high and then the 20-Day MA would show further strength. However, the rally would be rising into the flag consolidation zone where it could encounter resistance easily along the way. There is also the 200-Day MA, currently at $68.67, representing dynamic resistance across the top of the flag.

Reversal of Breakdown?

Since a rally would be counter to the bearish breakdown of the flag and channel, it may be the least expected outcome. Therefore, it could happen and may surprise on the upside given recent spikes in volatility seen since the lower swing high in April.

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