Given the significant increase in volatility seen since the start of the one-day bearish reversal last Thursday, volatility may continue for a while longer as the market digests the implications. Further tests of recent lows as support, if it occurs, should begin to provide some indication of what might come next. However, in general, since the lower end of the channel was reached, followed by a sharp bullish reversal and after a significant decline, it seems likely that a bottom, or close to a bottom has been established.
Additional Declines to Test Support Remains a Risk
Nonetheless, since the lower channel line is falling, additional tests of the line as support could occur below the $55.23 low. Therefore, a drop below that low may not see the same response as a continuation signal that occurs earlier in a trend. There is also potential support a little below Wednesday’s low at $55.00. That is the 127.2% (square root of 161.8%) extension of the bearish retracement starting from the 2023 peak of $95.50.
Largest Decline Since 2023
The current correction was the largest on a percentage basis since May 2023. It surpassed the two prior corrections that saw declines in the price of crude oil of 25.3% and 29%. Since the correction occurred along with a breakdown below long-term support and reached a 50-month low, it adds to a bearish thesis. However, that could take some time to play out and, in the meantime, it favors rallies to test prior support levels as resistance, or consolidation. A weekly closing price below the prior long-term support of $62.07 would further confirm a long-term breakdown on the weekly time frame.
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