Oil Price Analysis: Falling in a short-term channel

• Oil is falling within a descending channel on the near-term horizon.
• Within the channel it is currently correcting upwards, however, it is likely to capitulate and resume its downtrend.
• Only a decisive breakout of the channel would reverse the short-term bearish outlook.

Oil price is trading higher on Friday, changing hands above $79.50 at the time of writing, while rising within a bearish channel.

West Texas Intermediate Crude Oil (WTI) is in a short-term downtrend which, given the old adage “the trend is your friend”, is expected to eventually continue once the current correction has ended.

US WTI Oil 4-Hour Chart

However, WTI oil is likely to continue rising first as there are no signs yet that the correction is running out. It is possible that the price reaches the upper line of the channel around $80.00, however, when it gets there it will almost certainly encounter stiff resistance, and will likely reverse lower.

Oil has surpassed the 50 simple moving average (SMA), a bullish signal, but has not yet surpassed the 100 or 200 SMA. The oil price would have to decisively break the upper channel line, around 100 USD. Oil price would need to decisively break the descending channel and the 100 SMA to mark a trend reversal and suggest a more bullish technical outlook.

A decisive breakout would be accompanied by a long green candle closing near its high or three green candles in a row breaking above the channel line.

If this break occurs, oil could rally to an initial target around $83.10, the 0.681 Fibonacci ratio of the channel height extrapolated upwards.

The MACD (Moving Average Convergence Divergence) momentum indicator has broken above the zero line and is painting green bars on the histogram, suggesting that the current bullish leg is likely to extend. However, the channel line resistance is likely to push the price back. The overall bearish trend suggests the possibility of oil falling back to lows of $76.00.