If you’ve been focusing your attention last week on the volatility in the stock market, you may have missed the sharp sell-off in crude oil.

With half the month behind us, Crude Oil prices are down $12.50 (14.50%) for the month of May.  Let’s take a look at the weekly chart to note the key level that will either hold or fail as critical support.

From a chart perspective, oil has been in a rising parallel trend channel (purple lines) since July 2009… almost a year in the making.

Price has respected the upper and lower trendline as shown throughout the whole rally phase after the initial surge from $35 to $75 for the first half of 2009.

Where does that leave us now?

Price rests exactly on the lower boundary line, which corresponds with the $73.00 price level which is where crude oil closed last Friday.

The prior week took us from $87.15 to 74.51.  That’s the largest weekly decline on the chart since December 2008 gave us a similar bar.

For now, keep a close watch on the current $73.00 level, and if support fails at $73.00, then we’ll almost certainly see a test of the $70.00 level.

If buyers cannot hold the price support at $70.00… then we could see a sell-off and ‘positive feedback loop’ take us to test $60 over time, so it’s important to watch what happens here and now.

Corey Rosenbloom, CMT
Afraid to Trade.com

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