Crude Oil Price Forecast: Triangle Breakdown Signals Downside Risk

Breakdown From Consolidation Structure

Crude oil broke down from a symmetrical triangle consolidation pattern on Tuesday, falling below the interim swing low of $88.90 to reach a low for the day at $87.35. The lower boundary line of the consolidation pattern was broken and a daily close below the line will confirm the breakdown, but even more clearly with a close below the $88.90 swing low. A bearish trigger for the triangle pattern suggests further downside, but first there is potential support near the 100-day moving average.

100-Day Moving Average Reaction Zone

The low for the day was a successful test of support at the 100-day moving average at $87.14. Given an intraday bounce it seems that the dynamic support zone was recognized by the market. That was the first time the 100-day average was tested as support since it was reclaimed in late January. Therefore, it marks a key near-term price zone for clues about what might occur next. It could lead to further strengthening back into the consolidation pattern, or support near the average fails, resulting in further downside and possibly an eventual test of support near the 200-day moving average, now near $73.23.

Resistance Pressure Builds Near Breakdown Zone

Near-term structure resistance is at Tuesday’s lower daily high of $87.35. It is given added significance by the falling 10-day moving average, which now identifies a similar price zone. There is also a small falling parallel trend channel on the chart and its boundary lines mark potential support and resistance.

Path Forward: Reclaim or Rejection

If crude oil can get back into the triangle formation and remain within it, there may be a chance to continue to strengthen. Otherwise, resistance is anticipated to be found during rallies as prior support zones are tested as resistance. There are two prior swing lows of interest, one at $81.94 and the other at $76.26. Each represents a potential downside target area, while a failure of each provides a new bearish signal.

If you’d like to know more about how to trade crude oil, please visit our educational area.