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Crude Oil Tests Key Support Levels Amid Bearish Retracement
By: Bruce Powers | July 9, 2024

• Testing key support at the 20-Day MA, crude oil could see a bullish breakout if the line holds and strength returns.

Crude oil continued its bearish retracement with a test of support at two lines. Today’s low was 81.42, putting the price of oil in the vicinity of the purple 20-Day MA (81.58), an earlier downtrend line, and the 50% retracement (81.23) of the full advance starting from the June 4 swing low.

Finding support and completing a retracement around the 20-Day MA would be bullish and certainly is possible. Being a trend indicator, a successful test and subsequent advance off the 20-Day line would set the stage for oil to attempt another breakout of a top trend line. That trend line is also where resistance was encountered last week following the high of 84.74.



First Test of 20-Day MA Support

Today is the first day that crude tested the 20-Day MA as support since it rallied back above the line on June 10. If the line continues to act as an area of support, crude has a chance to again attempt a bull breakout above the trendline. But a breakout above the trendline will also trigger a symmetrical triangle bull breakout.

Preparing to Break Out of Large Symmetrical Triangle

Crude has been ranging within a large symmetrical triangle consolidation pattern since last. Given characteristics of the triangle pattern, the trading range for crude has been shrinking as uncertainty prevails. Following a bullish breakout above last week’s high of 84.74, crude oil will begin to break out and get free of the triangle pattern. It has the potential to see an acceleration of the advance once there is a daily close above 84.74.

Rest Before New Breakout Attempt is Constructive

A period of retracement and/or consolidation prior to a renewed rally above last week’s high will better prepare crude for a sustained bullish breakout. Last week’s high completed a 12 point or 16.5% advance in a short 23 trading days. That put crude in an extended position and due for a correction. If the 20-Day MA continues to show support, it will put crude in a bullish position to continue its advance once there are signs of strength.

Alternatively, a decline below the 20-Day line that doesn’t quickly recapture the line is prone to a deeper retracement. In other words, bullishness is retained if there is a quick drop to the 50% retracement at 81.23 or the previous swing high at 81.00. As long as the price of crude quickly recaptures the 20-Day MA, it is showing strength that could eventually lead to a breakout above last week’s high.

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