Crude oil bulls have now tried three times to accelerate up and have been unsuccessful, writes Al Brooks.

Crude oil futures have rallied in a parabolic wedge bull channel for two months. It is testing the 50% retracement of the late 2018 bear trend. The odds favor at least a pullback to somewhere between $51 and $55 within the next two weeks.

For the past several weeks, I have been writing that the daily chart would likely have one more leg up to test the 50% retracement of last year’s bear trend and $60, a big round number. This third leg has lasted three weeks. It is now testing that 50% retracement, which is $60.77 in the April contract.

In addition, crude oil is at the top of its two-month bull channel (see chart below). Three legs up in a tight bull channel is a parabolic wedge top. The bulls have now tried three times to accelerate up. If there is a bear bar closing near its low this week, the bulls might give up. The odds favor a selloff beginning within two weeks.

Crude oil wedge bull channel

That is how wedge tops work. If the market tries to do something three times and fails, it then typically tries to do the opposite. If the bears get a reversal this week, the typical goal is at least two legs down to the start of the bull channel. That is the Jan. 14 low of $51.31.

A higher probability target is the bottom of the pullback from the second leg up. That is the March 8 low of $54.82. In either case, a break below a tight bull channel usually leads to a trading range and not a bear trend.

It is important to realize that the bears do not have a sell setup yet, even though the rally is now in the sell zone. There is always a 25% chance of a successful bull breakout above a bull channel. By successful, I mean two or more big bull bars closing on their highs and above the bull channel. When that happens, the odds favor at least two legs up.

The rally often continues for a measured move based on the height of the channel. The channel began with the Jan. 14 low of $51.31. If the breakout begins this week, the breakout point would be last week’s high of $60.39. Therefore, a measured move up would be $69.47. Again, the odds favor a selloff and not a rally.