Crude Oil Price Forecast: Failed Breakout Signals Weakness

Crude oil completed a successful test of resistance around the 20-Day MA and a prior interim swing low on Tuesday with the day’s high of $68.84. The 20-Day line is at $68.63 currently and the interim swing low from December is $68.82. In addition, both an uptrend line and downtrend line marked a similar price area. So, there was confluence of multiple indicators identifying potential resistance, and resistance was seen.

It was a successful test of resistance given that a sharp decisive decline followed. The subsequent intraday decline failed to find support at Monday’s low of $67.36, before reaching a low for the day of $66.92, at the time of this writing. Trading continues in the lower quarter of the day’s price range, and it is possible a lower price may be reached before Tuesday is complete.

Bull Breakout Fails

A rally earlier in Tuesday’s trading session saw crude oil trigger a potential breakout of a double bottom bullish reversal pattern. However, the subsequent bearish reaction negates that breakout and adds to the risk of a failed bull breakout. Therefore, the chance that crude oil may challenge recent lows before attempting to go higher again increases. Although a drop below today’s low would provide the next sign of weakening demand, crude oil would be falling into a support zone that has been retained for approximately 10 days, including today.

Another Upside Attempt Possible

Certainly, it is possible that an upside breakout of the double bottom pattern will be attempted again, and it may have greater success next time. Given that the 20-Day MA continues to fall, the price that it represents will also decline. This makes it the next key potential resistance level to be challenged and possibly exceeded, if the bulls are to have a chance at a counter-trend rally. A daily close above the 20-Day MA would be needed for bullish signs that may continue to strengthen. Furthermore, a daily close above approximately $68.98 would then be needed to further confirm strength.

Weekly Chart is More Bullish Than Not

Note that the weekly chart (not shown) shows a potential bullish doji hammer candlestick pattern that formed last week. A bullish breakout signal triggered today and of course it has failed so far. But it is possible that following a deeper pullback into last week’s price range, a bullish reversal might follow that could lead to another breakout above last week’s high at $68.03 and the neckline of the double bottom pattern at $68.37.

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