On Tuesday, the price of crude oil continued to compress as the day’s trading range was the smallest since the early-April interim swing high, which was followed by a sharp drop to $55.23. At the time of this writing, crude is set to end the day’s session with a narrow range inside day with a low of $60.92 and a high of $62.12.
A decline below the low of the day has Monday’s low of $60.68 as the next lower target, followed by Friday’s low of $59.54. On the upside, there is initial potential resistance around Monday’s high of $62.74, followed by last Thursday’s high of $63.45. Thursday’s high just about completed a 50% retracement of the latest downswing.
Second Leg up on Horizon?
An intraday chart (not shown) provides more clues about what price levels to watch. There has been one sharp rally from the lows so far followed by a pullback that completed a little more than a 50% retracement before crude began to strengthen. Once the current consolidation phase is complete it looks like there could be a continuation of the rally from the bottom.
There has been only one leg up from that $55.23 low so far, and at least a second leg up would better complete the counter-trend rally. A breakout above today’s high could begin the next leg up. However, that depends on support being retained at or above last Thursday’s low of $58.86.
Largest Bearish Correction Since May 2023
The recent decline was the largest bearish correction in crude oil since May 2023, and it ended with a sharp rally and one-day bullish reversal with a strong closing price. It seems like there is a good chance that the subsequent rally may eventually test resistance around the 20-Day MA, currently at $66.18, or the 50-Day MA, now at $68.29. Since support was seen at the bottom of the trend channel, there is a chance that resistance may be tested around the top channel line. Nevertheless, channel analysis is one piece of technical evidence for at least a second leg up for the rally.
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