Crude oil prices fell sharply by 16% recently, hitting new lows and testing a key Fibonacci support zone. Traders are now monitoring for signs of a possible short-term rally.
On Tuesday, crude oil prices dipped to a new low of $65.65 before finding some support and bouncing back. The price found support in a zone marked by two Fibonacci levels, with the day’s low at $65.65 and the support zone ranging from $65.45 to $65.31.
The day’s closing price relative to this range could indicate whether the support level will lead to a short-term rally. The midpoint of today’s trading range is $67.59. If crude oil closes in the upper half of this range, it may signal a more positive outlook. Conversely, a close below $67.59 would suggest that sellers are still dominant.
Potential for Further Decline
Despite today’s bounce, crude oil prices have dropped significantly over the past two weeks, falling by 13.08 points or 16.6% from the most recent high on August 26. This decline followed a breakdown from a large symmetrical triangle pattern that had formed over the past year, which has contributed to the aggressive selling.
Possible Support Around $63.67
Looking ahead, the next potential support level is around $63.67. This level corresponds with the lower boundary of the triangle formation and the 141.4% extended target for a measured move, which is at $63.30. This support zone is also near the top of a long-term downtrend line, which has been a significant level since the bullish breakout in December 2021.
Oversold Conditions
Currently, crude oil is in oversold territory on the Relative Strength Index (RSI) momentum oscillator. Given today’s bearish movement, traders will be watching for signs of a potential rebound that could lead to a counter-trend rally. Historical data shows that when crude oil hits an RSI level of 30 or below, it often signals a potential turnaround. Further clarity on a possible rally may emerge in the next few days.