Oil Price Forecast: Crude Oil Crafts Lower-High After Support Bounce

Crude Oil Price Rallies After Test of Key Support

Oil prices have continued to rally following a short-term range that developed after last weeks bullish breakout. In early-April, price action found resistance at a long-term Fibonacci level around the price of 62.84, which is the 61.8% retracement of the 1998-2008 major move in Oil prices. That level came into play on April 2nd, and after two days of pullback, buyers jumped back on the bid to push prices beyond the 63-level. That move continued into last week, with buyers pulling back just shy of the $65-handle, and that led into a bit of softening in the trend as prices pulled back.

But, as discussed in this weeks Technical Forecast for Oil prices, that prior area of resistance presented appeal in the search for higher-low support. Connecting that Fibonacci level at 62.84 with a swing-low from last week at 63.11 built a zone of support that soon came into play. Monday saw prices drive down to this area, and that support held into yesterday morning just before bulls came back to the bid.

Crude Oil Price Four-Hour Chart

Chart prepared by James Stanley

At this point, buyers have pulled back shy of the 65-level, yet again, leaving another potential lower-high on the chart. Given that a key point of data will be released shortly, this can highlight the difficult prospect of chasing that bullish move so near resistance. This series of lower-highs may also be preluding a deeper pullback, as buyers get even more trepidatious around holding long exposure in Oil prices as another psychological level nears.

Crude Oil Price Hourly Chart

Chart prepared by James Stanley

Crude Oil Strategy: Keep the Focus on Support

With a trend as strong as whats been showing in Crude Oil price action, traders would likely want to continue moving forward with a bullish bias on the trend.

For reversal setups, traders would likely want to hold relatively tight stops so that if bulls continue to stampede higher, the damage can be mitigated. But, given the frothy nature of the backdrop behind Oil prices at the moment, combined with proximity to resistance, and those setting up reversal strategies can find workable set ups by plotting profit targets down to near-term support thresholds.

The same level looked at for higher-low support this week remains of interest, and that runs from 62.84-63.11. Just below that, a second zone of potential support exists from 61.58-61.87, and this could be utilized as a secondary target for reversal setups. And if prices are really going to spend some time giving back that prior bullish move, the potential for tertiary targets exists around the zone that runs from 60.00-60.35.

Crude Oil Price Four-Hour Chart

Chart prepared by James Stanley

For bullish continuation strategies, traders can utilize the same levels looked at above but without taking on bearish exposure in anticipation of prices moving down to that area on the chart. Given the overbought nature of the move on the Daily chart, combined with the fact that the first support zone from 62.84-63.11 has already produced a rather strong bounce, and traders may want to pay more intense focus upon support potential around 61.58 and 60.00-60.35.

Top-side breakouts may become attractive after the release of this mornings data, particularly if Oil prices can test above the psychological level of $65. But this is something traders would likely want to treat with extreme caution, as the bullish move in Oil prices is getting long-in-the-tooth, and prices may need to pullback for a bit longer before the longer-term bullish trend is ready to hold above 65 and re-test the 70-handle.