Crude Oil Price Forecast: Rebounds from $66.96 – Is the Correction Over?

Crude oil extended its bearish correction on Tuesday to a new trend low of $66.96. Subsequently, buyers took control and drove the price up to new highs for the day. At the time of this writing, crude oil hit a high of $68.66 for the day as it tested resistance around a trendline that marked the bottom of a prior consolidation phase.

Notice that the market recognized the line on the way down as support was seen at the line last Wednesday and it was followed by a bounce. Crude oil continues to trade near the high prices of the day and may complete a bullish dragonfly doji or hammer candlestick pattern if it remains in a similar position at the close of the session.

Breakout Above Tuesday’s High

A decisive breakout above today’s high would trigger a one-day bullish reversal breakout and put crude in a position to challenge higher trend resistance areas. The potentially more significant resistance zone is first around the 20-Day MA, now at $71.11.

For crude to have a shot of going higher and potentially reversing the bearish trend it needs to first get above and stay above the 20-Day line. That moving average can be viewed along with the downtrend line marking dynamic resistance for the decline. A decisive breakout above the line would put crude in a position to challenge potential resistance around the 50-Day MA, which is $73.23 currently.

Bounce off Monthly Support

It is important to consider several key factors when addressing support at the daily low point. Support was seen near an interim swing low of $66.86 from mid-November, and near the lower channel line for the current decline. That November support level was also a monthly low. Although the lower line was not hit specifically, the correction got close enough given the subsequent bullish reaction.

Moreover, a measured move for the correction shows a $13.79 or 17.1% decline from the most recent swing high at $80.76. The four prior bearish corrections in crude oil ranged from a decline of 14.8% to 18.3%. Since the current decline was close to matching the largest recent drop on a percentage basis, it provides another piece of evidence to support the likely completion of the correction. The fact that a sharp intraday bullish reversal followed further supports this thesis.

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