Crude Oil Price Forecast: Triangle Pattern Signals Volatility Contraction

Support Zone Continues Holding

Crude oil again tested key dynamic support on Thursday near the confluence of the internal uptrend line and 50-day moving average at $94.79. An inside day was established with a high of $98.80 near resistance indicated by the 20-day moving average, and a low of $91.14. That low was slightly above Wednesday’s retracement low of $90.05, helping to reinforce the developing support zone near the 50-day line.

This was the second time recently that key support was seen near the 50-day average. The prior higher swing low at $81.94 also found support near that average. Even though in both cases there was an intraday decline below it, all daily closing prices remained above it, showing the retention of dynamic support. If support near the uptrend line is retained, a symmetrical triangle pattern will develop, with the apex currently projected near June 4.

Triangle Pattern Builds Pressure

A symmetrical triangle pattern is a great way for the recent high volatility environment to eventually stabilize. As the price range narrows within the confines of the triangle, uncertainty increases and demand builds in preparation for a move out of consolidation. Given the timing of reaching the triangle apex, one of the two pattern boundary lines will be broken before June 4. Once there is a decisive breakout, volatility should spike again in the direction of the breakout.

If instead, this week’s low of $90.05 is broken, then the prior low of $81.94 becomes a target, followed by the rising 100-day moving average, currently at $77.97 and rising. Since this week’s low is not yet confirmed as a swing low, that possibility needs to be considered. Otherwise, crude oil is anticipated to further consolidate within the developing triangle pattern.

Bullish Hammer Points to Upside Test

Thursday’s inside day took the form of a bullish hammer candlestick pattern, which will trigger above the day’s high concurrent with a reclaim of the 20-day moving average. That would strengthen the bullish case for a continuation toward the upper boundary of the triangle pattern, tying back to the developing consolidation structure highlighted earlier. An upside target is near the top boundary line. There is also a prior weekly high at $105.99, marking a potential upside target.

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