Since last May's low, Crude has shown a pattern of rallying to the target extensions from each prior high to low swing and then pulling back to key Fibonacci support zones before rallying again. On this current daily CL chart, you can see that this pattern is continuing for now:

Click on image to enlarge!

The red trendlines on the chart show how the current targets were calculated; the prior high to low swings multiplied by 1.272 and the value derived projected upwards from the swing low. These are target extensions, and they represent the most likely areas for investors to take a breather from driving the market upwards. The current pullback is holding support in the 88 area, and if this were to break, the initial downside target would be the target extension shown in the 86 area. That’s not unlikely since this had been a comparatively minor corrective decline so far, but we’d need the actual support break to confirm that more downside is in store. A rally right from the current low would target the extension just under 93.80 instead; the 1.272 extension of the current high to low.

If we zoom this chart back a bit, we can see where this is headed in the long run:

Click on image to enlarge!

Now that the intervening .786 resistance retracement has been broken, we’re looking for the target extension just over $99, the 1.272 extension ratio of the larger high to low swing established during April to May of last year. If this pattern continues we can expect pauses and pullbacks at the smaller targets along the way, but that larger extension should serve to “pull price” upwards until it’s met.

Keep in mind that this particular projection is for the current front month on crude futures, we’ll adjust as necessary after rolling to the next contract, but the concept will be identical.

Knowing where to expect interim highs and pullbacks can help a swing trader determine risk/reward factors and scale in and out effectively, where the longer term trader has a higher degree target to shoot for as well. Day traders need to be aware of these levels too, and can also focus on shorter timeframes using the same Fibonacci ratios.

For more from Mark including his “Chart of the Day”, visit MJBraun.net.