Crude Oil Price Forecast: Testing Key Moving Average Support

Failed Bull Pennant Breakout

Crude oil triggered a failure of a bull pennant breakout on Thursday. This occurred after the pattern broke out to the upside on Wednesday, reaching a peak of $65.87—marking the third highest closing price in the ongoing bull trend. However, on Wednesday, crude oil fell hard to a low of $62.42, as it tested support at the confluence of the 200-day and 20-day averages. It is on track to close in a relatively weak position near the lows of the day.

20-Day Average Remains Key Support

Since the 20-day average has already been confirmed as dynamic support by the market, it remains a critical lower boundary for the bull trend. It was successfully tested twice as support recently, once during the pullback on January 19 and again on February 3. Of course, the 200-day line also has significance but is not as clearly confirmed as support when compared to the 20-day average.

Critical Juncture for Trend Direction

This leaves crude oil in a critical spot. A decisive drop through today’s low will signal further weakening, while support may continue to hold, eventually resulting in a bounce off the averages. The second scenario looks more likely since Thursday’s session is set to close above the 200-day average at $62.77 for the fourth day. Monday’s low of $62.67 also points to the price area. This would further confirm the 20-day average as support for the uptrend. However, a decisive extension of the trend above $66.57 will be needed to confirm a bullish continuation. A rally above Wednesday’s lower swing high would provide an earlier sign of strength.

Upside Targets Above $66.57

If crude oil can sustain an advance above $66.57, it heads towards an internal downtrend line and the 127.2% projection of a measured move, as shown by the ABCD pattern on the chart, at $67.02. The 78.6% Fibonacci retracement target from the most recent large downswing is $67.83. Reaching that level would require a breakout above the downtrend line, providing another sign of strength.

78.6% Retracement Remains Primary Target

For now, it looks like the 78.6% level is the upside target for crude oil until additional information is provided by the market. It is possible that buyers will retain control and extend the advance. An upper downtrend line marks another upside target, suggesting that the developing bull trend could have further upside to go. It is important to keep in mind however, that advances are counter to the long-term bear trend that the advance is contained within.

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