Crude Oil Price Forecast: Volatility Tests Bullish Reversal Structure

Volatility Rises After Bullish Reversal Breakout

Volatility has spiked in crude oil following early signs of a bullish trend reversal. A double bottom breakout confirmed on Monday along with a trendline break. The 50-day average was reclaimed a day earlier and confirmed on Monday with a daily close above the average. Subsequently, a sharp rally led to resistance and the peak of the current advance at $62.39, generating an outside day. Sellers took control following that high on Wednesday, driving crude oil to a three-day low of $58.91 on Thursday.

ABCD Targets Met as Sellers Reassert Control

The rally high of $62.39 completed an approximate 141.4% (2) (D) projection for a rising ABCD pattern before sellers took back control. Earlier in Wednesday’s session, a 127.2% projected target at $61.86 was busted through with little hesitation. The advance fell short of reaching the 200-day moving average at $, which remains an upside target and the beginning of a larger price range up to $63.24.

First Pullback Tests Key Support Levels

Thursday’s decline is the first pullback following recent breakouts. The reaction of crude oil near prior resistance areas is what to watch next. Once prior key resistance levels are successfully tested as support, crude oil should be ready to rally again. Both the double bottom breakout and daily close above the lower swing high at $60.56 provided bullish trend reversal signals.

On Thursday crude oil pulled back to test support near the double bottom pattern breakout level (D) at $59.00 and the 50-day average at $58.67. Confirmation of strength is indicated currently as the 10-day average is starting to cross above the 50-day line. In addition, today’s lows have touched the downtrend line, testing it as support as well.

Near-Term Risk Hinges on Holding Recent Lows

If Thursday’s low continues to hold as a low, another advance in crude oil may be seen soon. On the downside, the 20-day average, now at $58.17, can be seen as a lower possible support area if crude oil continues to weaken in the near-term. A drop through the 20-days begins to put recent bullish signals at risk of failure. But that won’t be assured unless there is a decline below the second bottom at $55.82 (C).

Weekly Close Will Clarify Trend Continuation

Finally, a new weekly candle will be completed tomorrow. A weekly bullish continuation above last week’s high of $59.83 needs a weekly close above that level to confirm the upside move on the weekly timeframe. If the week ended today, it would show a bearish inverted hammer doji with a weekly close in the lower third of the range.

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