Indulge in a channel for a short period of time

• In the short term, oil is on the decline.
• There is currently an upward correction within the channel, but it is likely that it will capitulate and resume the downtrend.
• Only a decisive breakout of the channel would reverse the near-term bearish outlook.

Oil prices are trading higher within a descending channel, trading in the 79.50s at the time of writing on Friday.

West Texas Intermediate (WTI) crude oil is in a near-term downward trend, which is expected to eventually continue once the current correction ends, given the old adage “the trend is your friend.”

US WTI crude oil 4-hour chart

However, WTI crude oil will continue to rise first as there are no signs yet that the correction is coming to an end. The price could reach the upper channel line around $80.00, but once there it will almost certainly meet strong resistance and reverse to the downside.

Oil has moved above the 50 simple moving average (SMA), a bullish signal, but has not yet crossed the 100 or 200 SMA. Oil prices would need to break decisively from the descending channel and the 100 SMA to signal a change in trend and suggest a more optimistic technical outlook.

A decisive breakout occurs when a long green candle closes near the high or when three green candles in a row break the channel line.

If such a break occurs, oil prices could rally to an initial target of around $83.10, with the 0.681 Fibonacci ratio of the channel height estimated to be higher.

The Moving Average Convergence Divergence (MACD) momentum indicator has risen above the zero line and is currently showing green histogram bars, suggesting that the bullish zone is likely to extend. However, it is likely that the price will eventually fall again due to resistance in the channel line. The overall bearish trend suggests that oil prices may eventually fall to a low of $76.00.