Crude Oil Price Forecast: Tests Support Zone After 16% Decline

Crude oil continued its descent on Tuesday, reaching a new low of 65.65 for the trend before finding support and bouncing. It found support today in a price zone marked by two Fibonacci price levels. The low for the day was 65.65 and the Fibonacci zone runs from 65.45 to 65.31.

Where the day closes relative to today’s range may provide a hint as to whether today’s support can lead to a short-term rally. The mid-point of today’s trading range is 67.59. So, if crude closes in the top half of the day’s range it will be providing a slightly more bullish clue than bearish, while a close below 67.59 suggests that the sellers remain in charge.

Lower Price Levels May Yet Be Tested

Although today’s low was close to the next identified potential support zone, the price of crude has fallen sharply in a couple weeks, dropping by 13.08 points or 16.6% below the most recent swing high on August 26. A breakdown from a large symmetrical triangle pattern triggered shortly after that high was reached. Given the size of the pattern, having formed over the past year, it is not surprising to see aggressive selling.

Strong Possible Support around 63.67

Subsequently, it seems likely that the next lower possible support zone looks to be from around the 63.67 swing low at the beginning of the lower boundary line of the triangle formation. That price level coincides with the 141.4% (square root of two) extended target for a measured move at 63.3. It is illustrated by the falling ABCD pattern (purple) on the chart.

There is also the top of the long-term downtrend line that would be tested as support around the same price zone. It has significance given its long-term nature. When several indicators are pointing to a similar conclusion, it suggests that we pay attention. Crude has traded mostly below the line since the bullish breakout in December 2021.

Oversold Territory

Crude has moved into oversold territory on the relative strength index (RSI) momentum oscillator. Given today’s bearish price action traders will be on the alert for signs of a bottom that might lead to a sharp counter-trend rally. Notice the history of crude oil hitting the oversold level of 30 and below as it did today. Another day or two should provide greater clarity as to a possible counter-trend advance.

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