Oil Price Analysis: Potential cracks showing in downtrend

West Texas Intermediate (WTI) US Crude Oil is trading up over a percent at $78.01 on Thursday. 

The commodity is in a short-term downtrend on the 4-hour chart (below) which given the old saying “the trend is your friend” would be expected to continue, favoring shorts over longs.  

WTI Oil, however, is showing some early bullish reversal signs. It formed a Doji Japanese candle at Thursday’s 76.74 lows (shaded rectangle). This was followed by two bullish candles in a row. Although it is too early to say for sure, the candlestick formation could be an indication of a short-term change of trend. 

Oil 4-hour Chart

If Oil can continue rising up and definitively pierce above the green down trendline at roughly $79.00 it would be a sign that the short-term trend had reversed. 

A definitive break above the trendline would be one accompanied by a longer-than-average green candle that closed near its highs or three green candles in a row that broke above the trendline. 

Such a break would be expected to climb to a target at about $80.00, the resistance level of the May 20 lower high. 

The Moving Average Convergence Divergence (MACD) momentum indicator is below the zero-line indicating a bearish environment. The blue MACD line is looking like it is about to cross above its red signal line, however, which would give a buy signal in line with the possibility of a reversal indicated by the Japanese candlestick pattern.  

Alternatively, a capitulation and continuation of the still-intact downtrend would see WTI Oil price extend lower. A break below the May 15 monthly low at $76.38 would add confirmation to the bear trend and probably result in a move down to support from an older low at roughly $75.75 initially, with deeper declines attacking major historic support at $71.50.