Crude Oil Price Forecast: Tests Key Support, Eyes Bullish Reversal Potential

Crude oil remains in a bearish correction following a 13.65 point or 20.3% advance that ended with a high of 80.76 on January 15. However, it did reach a potential support zone on Monday with a low of 73.23. Today, Tuesday, crude oil traded inside day and had a successful test of resistance around the 200-Day MA (blue) with the day’s high of 75.14. The 200-Day line is at 75.20 and it previously marked a potential support zone

9.3% Bearish Correction

As of Monday’s low, crude was down by 9.3% from the recent swing high of 80.76. Support was seen around a prior key resistance level at 73.27. The decline completed a 50% retracement at 73.93 on the way down. Confirmation of support was also indicated by an internal uptrend line that marked a similar price zone as the November 7 minor swing high and top of a price range. In other words, crude has reached a support zone that could lead to a bullish reversal. Continue to watch price behavior around the 73.23 low.

Inside Day Bull Breakout Potential

If there is a rally above todays inside day high of 75.15 and considering the 200-Day line at 75.20, crude could complete a bullish reversal that could lead to an advance. There are several potential barriers that would then need to be considered on the way up as resistance could be seen. The 20-Day MA is at 75.92 and it is a little shy of a trendline that could present resistance. Tuesday’s high at 76.03 could also be considered. Together, these price levels present a potential resistance zone from 75.92 to 76.20 (Friday’s high).

Downside Risk Remains

On the downside, a drop below 73.23 provides a bearish continuation signal and increases the chance that the next lower potential support area is reached. The lower price support zone looks to be around 72.32 to 72.15. That range includes the 61.8% Fibonacci retracement level and the 50-Day MA, respectively. The 50-Day line is key as it was recently reclaimed on December 24, a couple day’s before a sharp rally began. This decline would be the first test of support at the 50-Day line since then. A daily close below it would be bearish and could indicate further selling pressure.

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