Crude Oil Price Forecast: Potential Bullish Reversal Emerges After Sharp Decline

Crude oil fell to a new retracement low of $56.67 on Thursday as it tested the prior support zone that ended at $55.23 on April 9. Following the day’s low, which just about reached an 88.6% retracement of the counter trend rally, buyers took back control. The day establishes a second bottom for a potential double bottom pattern. Nonetheless, that won’t be established for a while, but there is a chance that today’s low will create a higher swing low.

If established, that would be a short-term bullish sign that could be more significant if it leads to a bottom. At the time of this writing, trading is occurring in the top half of the day’s price range, above $58.00, and above Wednesday’s low of $58.21. If crude oil can end Thursday’s session above those two price levels, it will be showing early signs of strength that could lead to a bullish reversal.

Bullish Hammer Pattern

There is a possible one-day bullish hammer reversal candle to be established today. If so, a breakout above today’s high confirms the pattern. It shows sellers being in control earlier in the day’s trading session as crude oil dropped below yesterday’s low and signaled a bearish continuation. But sellers could not maintain control and the price of crude subsequently advanced following a $56.67 low.

Thursday’s trading range was relatively wide, from $56.67 to $59.33, and it occurred within a sharp three-day decline contained within a larger bearish trend. Therefore, it wouldn’t be surprising to see a day of rest and consolidation inside today’s range before crude oil is ready to advance and trigger the potential hammer pattern.

Bull Breakout Above $59.33

Irrespective of bearish considerations, a bullish breakout will be indicated on a rally above today’s high of $59.33 and confirmed by a daily close above that high. Crude oil would then rise in a larger downtrend and up into resistance zones. The first price area to watch for minor resistance is around $60.40, which was an interim higher swing low. Since resistance was found during the first counter-trend rally around the 20-Day MA, currently at $62.00, it provides a maximum initial upside target if today’s signs of strength lead to a bounce. However, the 61.8% Fibonacci retracement level at $62.01 currently marks the same price area. It provides another target, and it is correlated with prior daily support.

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