Crude Oil Nears Key Support Zone After Wedge Breakout Pullback

Crude oil broke below the 200-day moving average last Tuesday. That trendline had supported the market since March. Since then, prices have drifted lower. The decline now tests a support zone that matters.

The zone starts at the 78.6% Fibonacci retracement of the wedge breakout rally, near $68.81. It extends down to a prior resistance area from January, around $66.57. Within that range sits a long-term downtrend line from the March 2022 high of $131.31. That line was the top of a large falling wedge that broke out in early March. The breakout drove prices to a multi-year high of $119.54. The current drop is a correction of that move.

For traders, the setup is straightforward. A successful test of this zone would set up the next leg higher. The first sign of a bottom would be a daily close above $68.81. From there, the 200-day moving average at $74.75 is the first real resistance. Above that, the symmetrical triangle breakdown zone near $88.90 and the 50-day MA near $92.78 become targets.

What would break the case? A daily close below $66.57. That would open the 88.6% retracement at $62.36. A move that deep would likely negate the wedge breakout altogether.

Volatility has been high since the wedge breakout. A sharp reversal from this support zone is plausible. The weekly EIA inventory report is the next data point. A large crude draw could trigger the bounce. A build might add pressure. Either way, the levels are clear.