Crude Oil Update: Triangle Near Completion As Bears Eye Another Leg Lower

Crude oil remains in a tricky position and has been trading sideways for quite some time. We have been tracking a triangle pattern for the last two to three months, and it still has not been broken. Until the key trend lines are taken out on either the upside or downside, this range-bound price action can continue.

However, because of the sharp reversal lower from the March highs toward the 76 area, we continue to view that decline as an impulsive wave A, followed by a triangle consolidation in wave B. Since we can now count all of the required A-B-C-D-E legs within this contracting range, traders should be aware of the potential for renewed weakness, especially after the current rebound, which is moving back toward the unfilled gap from May 22.

As many traders know, gaps of this nature can often act as magnets for price before triggering sharp reversals once they are filled. For that reason, it is very possible that crude oil will turn lower again, ideally heading back toward the lower boundary of the range. A successful break below the 90 level could then open the door for a much larger selloff.

Resistance remains around the 100 level, while a more significant resistance zone is located near 104, where the upper boundary of the triangle also comes into play. More importantly, the market should remain below the 109 and 113 levels. If those levels are broken, then the bearish outlook would become questionable, and we may instead be looking at the start of another major bull run in crude oil, potentially even toward new all-time highs.

For now, our preferred view remains bearish, and we still believe that crude oil could eventually move toward the 67 area per barrel.

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