WTI Trendline Breakout Creates Problems as Retail Traders Buy
Crude Oil Weekly Technical Outlook: Bearish
- Crude oil prices fell on concerns over global growth
- WTI pulled out a key uptrend line, hinting at further losses next
- This is because retail traders are now mostly long, a bearish signal
WTI crude oil prices fell last week, extending losses since the start of this month in the middle rising recession woes. In fact, the commodity confirmed a break below an uptrend line from December, opening the door for further losses in the coming sessions. However, prices left behind an uptrend Morning Star Candlestick Pattern. A move back above the former trendline may portend a resumption of the uptrend.
Immediate support lies at the 38.2% Fibonacci retracement level at 103.83. Confirmation of a break below this level could hint at a resumption of the downtrend, placing focus on the May low at 98.22 before the 92.95 – 95.11 support zone emerges . It is also around this range that the 200-day simple moving average (SMA) may come into play, perhaps restoring the dominant focus on the upside.
Let’s look at the 4-hour chart to paint a better picture of what to watch for price action in the coming week.
WTI daily chart
Chart created using TradingView
On the 4 hour setting, we can take a closer look at the rally seen in WTI towards the end of last week. During this timeframe, Oil moved above the 20-period SMA. This now emphasizes the equivalent of 50 periods. Confirmation of a break above the latter could make the outlook increasingly bullish in the days ahead. Above the 50 period line is the 23.6% Fibonacci retracement at 116.40 before the June high at 123.66 comes into play.
WTI 4 hour chart
Chart created using TradingView
Crude Oil Sentiment Outlook – Bearish
The GI Customer Sentiment gauge (IGCS) shows that around 52% of retail traders have a net long position in crude oil. The IGCS tends to work as a contrarian indicator. Since most traders have turned bullish, this is a sign that prices may continue lower. Upside exposure has recently increased by 32.45% from a week ago. With this in mind, the combination of global positioning and recent changes produces a stronger bearish contrarian trading bias.
* IG customer opinion charts and positioning data used from June 24e Report
–— Written by Daniel Dubrovsky, Strategist for DailyFX.com
To contact Daniel, use the comments section below or @ddubrovskyFX on Twitter
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