The downside target for oil near $38 was almost achieved in the week of August 29 with a low of $38.24. But there are signs of hope for higher prices.
But the rebound rally from $38.24 was fast and strong, which suggests the downward pressure in oil is weakening. Traders are now alert for the development of patterns that signal the end of the downtrend.
There are three significant levels on the weekly chart; support resistance levels near $58, $48 and $38. A sustained move below $38 has a downside target near $28 but there is a low probability price will move below $38.
Instead, the pattern of price development that started around March 2015 has the potential to develop into a inverted head and shoulder pattern. This type of pattern is a reliable indication of a change in the direction of the trend. The chart pattern development is best seen on a weekly chart.
The price activity for this pattern is currently developing and the full pattern might not be completed for several weeks. Most key, when the pattern is not confirmed, we should use this analysis with caution.