Oil Price Forecast – Oil Having a Hard Time Getting off the Bottom

Crude oil weakened on Tuesday to $51.57, down 0.73 or 1.33%, currently. Global economic growth concerns from the spread of the coronavirus along with a strengthening U.S. dollar weigh on oil as it moves further towards defining a bottom that could lead to a tradeable bounce, if not a more significant bullish reversal.

Apple Raises Fears 

Leading global technology giant Apple, Inc. announced that it would not meet its sales forecasts due to the impact from the virus. That raised uncertainty among investors and fears that the global economic impact from the virus will be greater than anticipated, thereby pushing investors towards safer assets.

A slowdown in growth will impact the demand for oil, but it’s not clear to what degree.

Meanwhile, the U.S. dollar index was up again today, rising to a new trend high. The dollar has been up 10 of the past 12 days and has risen as much as 3.25% in seven weeks.

Bullish Reversal Still Possible

Regardless of today’s weakness, the technical evidence still favors oil finding a bottom, at least short-term, and electing a bullish reversal in the relatively near future.

Over the past couple of weeks, a potential double bottom bullish reversal has been forming in the chart of oil. Potential, because price hasn’t yet broken out of the pattern and confirmed strength. Therefore, the bottom pattern could still evolve into a different pattern altogether, or it could fail.

Watch for Decisive Breakout

A bullish breakout occurs on a decisive rally above last week’s high of $52.32, followed by a daily close above that price level. At that point the double bottom will have confirmed, and we will have a higher weekly high, which is bullish by itself. It would also be the second week in a row where there was a higher weekly high.

Be Prepared for Alternative Scenario

Nevertheless, anything can happen, and the longer it takes for buyers to again dominate, the more uncertainty exists. Key support is clear and at the recent low of $49.30. If oil falls below there selling pressure is likely to increase. It could be significant as market participants can easily identify that price level. Or, there we could see a fake out, clearing stops and then quickly reversing higher.

Some possible targets are marked on the enclosed chart as prior swing highs or Fibonacci price zones.