The counter trend rally in the price of crude oil failed to reclaim the 20-Day MA during recent attempts and crude is now showing weakness once again. Resistance during the rally occurred around the 20-Day line during the recent advance, which led to a bearish breakdown on Tuesday. Following the April 9 spike low of $55.23 crude oil formed a small rising trend channel with similarities to a flag pattern.
However, the flag did not form close to the lows of the recent decline and therefore will be considered more as a consolidation pattern rather than a bear flag. A breakdown from the pattern triggered on Tuesday as the lower support line of the pattern was broken, as well as a drop below support for the prior seven days at $61.83. Furthermore, a one-week bearish reversal also triggered during the decline.
Bounce Completes First Phase
In addition to indications from the 20-Day MA, the top of the rally at $65.32 was a test of prior long-term support (red highlight) as resistance and signs of resistance were clear. The trend high day last Wednesday ended with a bearish engulfing pattern. It was followed by a minor rally that found resistance around the 20-Day MA yesterday, but at a lower price since the line continues to fall.
Lower Support Levels
Crude oil looks certain to test an interim swing low and 50% retracement at $60.40 and $60.27, respectively. And it may still do so before the Tuesday’s ends. Since the bearish flag breakdown only triggered today, it seems likely that crude will fall through that price area. The $60.27 price level is also a prior weekly support level and a drop below it will reflect further bearishness on the larger time frame weekly chart.
If $60.27 does fail as support, the next lower area to watch for support is marked from $59.08 to $58.86, consisting of the 61.8% Fibonacci retracement at $59.08 and a previous daily low $58.86. Still lower is the 78.6% Fibonacci retracement at $57.39.
