Oil broke down on Friday. The price of the gooey black stuff fell more than 4% just as we kicked off the “biggest driving weekend of the year.”

Of course, those of us in charge of filling up the gas tank know this happens every year. The price of oil starts to rally about six weeks before the Memorial Day weekend – in anticipation of increased demand for gasoline. Then, as soon as everyone has topped off their tanks with $4 per gallon gasoline, the price of oil peaks and starts to come back down.

But, the price of oil isn’t likely to stay down for too long. The longer term chart I showed you several weeks ago has a minimum upside target of about $77 per barrel. And, if oil gets above that level then the next resistance is up at about $90.

In the short term, though, oil has more work to do on the downside. Take a look at this chart…

For the past several weeks the chart of West Texas Intermediate Crude Oil has been forming a “Bearish rising wedge” pattern (the red lines on the chart). That’s where the price makes higher highs and higher lows, but where the distance between those highs and lows contracts. This pattern usually breaks to the downside.

Oil formed a similar pattern last December and January. You can see how the price broke down in early February.

We got a similar break down from a similar pattern last Friday. The first level at which oil can find support is the 50-day moving average at about $67.50 per barrel. But, that might be a bit too optimistic.

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The next support level, and the point that matches up best with February’s decline is the second blue line at about $66 per barrel.

And, the worst case scenario which would completely erase the entire rally from early April, would be a pullback to the bottom of the wedge pattern at about $62 per barrel.

Traders might consider buying oil as it approaches $66. But, leave some money available to buy at even lower prices.

Investor sentiment on oil got way too bullish last week. It may take more than just a quick pullback to shake those folks out of position. So, I think there’s a fairly good chance we’ll see oil dip below $63 per barrel over the next several weeks. And, that’s where I think traders can aggressively buy oil again.

Best regards and good trading,

Jeff Clark