Crude Oil Price Forecast: Strengthens as Countertrend Rally Builds Momentum

Crude oil continued to strengthen on Tuesday, reaching a slightly new high for the countertrend rally of $64.81, before backing off. A breakout above Monday’s high of $64.09 triggered during Tuesday’s advance followed by a breakout to a new trend high. However, at the time of this writing, crude oil continues to trade below yesterday’s low.

A daily close above that high would confirm the one-day continuation signal as a close above the prior high looks unlikely for today. Nonetheless, today’s low of $63.20 generates a higher daily low. That low is key short-term support as a drop below that price level could see further short-term weakening.

20-Day Moving Average in Sight

Given that the rally shows signs of continuing, higher potential price targets remain valid. The first target is the 20-Day MA, which continues to fall, and it was almost tested as resistance today. It is currently at $65.18. After the 20-Day line is prior support from $65.65 to $65.92, along with the 61.8% Fibonacci retracement of the latest decline at $65.89.

If that price zone is breached, the $67.08 to $67.64 price area becomes the next higher target zone. First, there is the completion of a rising ABCD pattern (purple) at $67.08 (D). It is followed by the 50-Day MA at $67.64. But since the 50-Day line is falling it will be closer and possibly below the ABCD target before crude oil rises to test it as resistant, if that is what happens.

Advance in Reaction to Sharp Sell Off

Since the latest decline in the price of crude oil was sharp, the counter-trend advance has the potential to complete a full retracement. The speed of the advance is already not like the decline, but because of this the counter-trend reaction may surprise on the upside. Regardless, there is the potential for crude oil to test higher potential resistance areas before the rally is complete.

As noted above, that might begin to change if there is a decline below today’s low of $63.20. At the same time, it would not be unusual to have a pullback or consolidation on the way higher. The behavior of crude oil around the next potential resistance zone should provide clues as to the strength or weakness of the advance.

For a look at all of today’s economic events, check out our economic calendar.