The significance of the 78.6% retracement area is enhanced by the completion of an initial downside target for a falling ABCD pattern (D) at 69.70. It identifies price symmetry between the AB and CD legs of the pattern. This makes the support zone potential significant as a decisive drop through it could lead to a test of recent lows, and a bullish reversal could be the beginning of a move to reclaim the 20-Day MA and 50-Day MA. If the 50-Day line can be reclaimed, then crude has a chance to challenge the recent swing high of 79.02. Before then, however, the 200-Day MA at 77.89 would need to be reclaimed.
Crude oil has been showing mixed signals following the breakdown from a large symmetrical triangle formation that triggered at the beginning of September. Following the initial decline to a 65.65 low, crude rally back into the triangle with the potential for a failed breakdown. A failure of the bearish pattern has the potential to breakout to the upside, moving above the top boundary line of the triangle.
Also of concern is the lower boundary line of the pattern. Crude is currently trading below the line marking it as potential resistance. Until the line is reclaimed with a decisive daily close above it, crude remains below the triangle and supportive of the breakdown. Follow through will be key. The 78.6% retracement is generally the maximum retracement anticipated that may be followed by a tradeable rally. Below there, the potential for a failure and continuation of the decline increases.
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