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Crude Oil Prices May Resume Down Move After Rebound

CRUDE OIL PRICE TECHNICAL FORECAST: BEARISH

  • Crude oil prices snap higher, break 2020 trend resistance
  • Long-term chart setup paints latest rebound as corrective
  • Trader sentiment studies hint selling pressure is growing

Crude oil prices snapped higher after suffering shocking losses and setting a record low just over two weeks ago, clearing resistance guiding them downward since the beginning of the year. Support-turned-resistance in the 27.40-29.11 area is now in focus, with a daily close above that seemingly setting the stage for a retest of 42.40, the underside of the December 2018 bottom.

Pushing through rising trend line support underpinning the recent recovery seems like a prerequisite for rekindling the move lower. This is immediately followed by a downside barrier clustered near the $20/bbl figure as well as the recently broken trend resistance, now recast as support. In practice, this probably means that a breach below swing low support at 10.27 is needed enthuse sellers in earnest.

WTI Crude Oil Daily Price Chart

Daily Crude Oil Price Chart

Crude oil price chart created using TradingView

Zooming out to the monthly chart for a broader perspective seems to suggest the path of least resistance continues to point downward. The eye-watering collapse in March saw prices crash through support that had underpinned them since the 2008 global financial crisis. Recent gains appear corrective in that context, at least for now. A breach of structural resistance – now just below $70/bbl – seems needed to say otherwise.

Crude Oil Monthly Price Chart

Crude Oil Monthly Price Chart

Crude oil price chart created using TradingView

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Sentiment studies seem to concur. Retail positioning data shows 59.49% of traders are net-long, with the long-to-short ratio at 1.47 to 1. IG Client Sentiment (IGCS) is typically used as a contrarian indicator, so traders being net-long suggests a bearishcrude oil trend bias. Furthermore, the net-long skew has grown compared with yesterday and last week. This appears to suggest that selling pressure is growing stronger.

US Crude Oil Client Positioning

See the full IGCS sentiment report here.

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— Written by Ilya Spivak, Head APAC Strategist for DailyFX.com

To contact Ilya, use the comments section below or @IlyaSpivak on Twitter

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