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Crude Oil Consolidating and Looking to Breakout

The last down-wave in light sweet crude oil (CL) started in late June when the price was trading around $61. The decline continued into August, eventually reaching a low of $39.22 on the December contract.

A sharp rise followed, pushing the price to a swing high of $50.89 within five trading sessions. Since that high on August 31 the price has been consolidation between $48.48 and $44.67. On September 24 the price dropped below $44.67, but only briefly. A closing price below $44.67 would carry more weight in indicating a breakout lower in crude oil. If the price can't close below $44.67 on September 24, then the day low (currently $44.31) would be the new low of the consolidation and the future breakout point to watch.

The initial target for the decline is the recent low at $39.22. The current setup is similar to what was seen early in the year: a large selloff followed by a small reversal on higher volume, a consolidation and then a break lower on lower volume. The price stalled out near the prior low before seeing a more significant bounce. We'll see if a similar scenario plays out here.

Figure 1. December Crude Oil (CL) - Daily Chart

If the price rallies from here, look for a breakout above the consolidation high at $48.48. Given the long-term downtrend a breakout higher is more prone to being a false breakout, and the price still has to rally through the $50.89 high before it can gain serious traction. Upside targets in that case are $53 and $58.


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