20-Day Line Turned Down
Notice that the top of the flag shows resistance around the 200-Day MA (blue) and the 20-Day MA (purple). Plus, the 20-Day line has turned down recently and that follows an advance since May 28. It is also interesting to notice that a minimum 38.2% Fibonacci retracement was completed around the recent lower swing high at $69.98. Together, these signs of resistance are consistent with the formation of a bearish flag and simultaneous bull channel breakdown.
Flag Preceded by Sharp Selloff
Given the sharp descent that generated the pole portion of the bear flag, the bears will be fighting the bulls, as a large potential support zone is not much lower. When including the 50-Day MA, that zone would start around $65.74 to $64.50. The range begins with the 50-Day MA, is followed by the combination of an AVWAP level and the neckline of a double bottom pattern around $65.33 and finishes with the 61.8% Fibonacci retracement. Subsequently, a decisive decline below the 61.8% level will confirm a continuation of the bear flag breakdown.
Above Day’s High Could Lead to Bounce
Despite the bear trigger there needs to be follow-though to confirm. Notice that today’s range is very narrow and not what is generally anticipated on a solid breakdown. Traders should stay cautious as a rally above today’s high of $67.41 could lead to another test of resistance around 20-Day MA, now at $68.47, or another resistance level. Of course, that would keep crude oil within the flag consolidation pattern. On the upside, a decisive decline below today’s low of $66.50 triggers a continuation of the bear flag breakdown and opens the door to lower prices.
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