Crude Oil Price Forecast: Testing Support Before Possible Bounce

Short-Term Risks Amid Long-Term Uptrend

Although the larger picture in WTI spot crude oil retains an upward bias, there is short-term risk of further weakness. Crude oil has been attempting to confirm support near the 200-day average for several weeks and it continues to test that level. It has been consolidating within a relatively narrow range, but a sloppy range. Also, the 20-day average, now at $63.20, has been tested as support for four days and is at risk of failing.

Recent Price Action and Support Tests

On Tuesday, crude oil fell below both moving averages to reach a 10-day low of $61.89, and it is at risk of closing the session in a similar position. The lowest daily closing price for the past 15 days is $62.42, right near the prior trend high of $62.39. A daily close below that level will also be below both the 20-day average at $63.19 and 200-day average at $62.82. That would suggest a possible failure of support at those indicators and would open the door to a deeper pullback.

 Technical Levels and Downside Targets

A 50% retracement of the internal upswing was completed during the first pullback after the $66.57 trend high was hit in late January. Failure of the moving averages opens the door to the 50-day average, now at $60.19. The 61.8% Fibonacci retracement level is nearby at $59.23. However, the first downside target may find support near the completion of a falling measured move as seen in the ABCD pattern on the chart. That lower initial target from the pattern is $60.39. Remember, the 50-day line is rising and will soon reach the 100% projected target.

Trend Reversal and Bullish Potential

Despite the potential for a deeper pullback, recent signs of strength suggest the potential for higher prices. Crude oil has been showing strength as it goes through a trend reversal, from bearish to bullish. An initial trend reversal signaled on a breakout of a downtrend line and the 50-day moving average in January. Strength was then confirmed by a reclaim of the 200-day average on the way to the January high of $65.57. There has been one pullback to test the 50-day average as support since the breakout, but it was on a smaller scale.

If crude oil continues to weaken short-term, a bounce off the 50-day average would complete a second and larger pullback for crude and could set the stage for a continuation of the advance.

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