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Crude Oil Price Outlook: WTI Trendline Breakout Spells Trouble as Retail Traders Buy

Crude Oil Weekly Technical Outlook: Bearish

  • Crude oil prices have been falling with global growth concerns
  • WTI took out a key rising trendline, hinting at further losses next
  • This is as retail traders are now majority long, a bearish signal

WTI crude oil prices fell this past week, extending losses since the beginning of this month amid rising recession woes. In fact, the commodity confirmed a breakout under a rising trendline from December, opening the door to extending losses in the sessions ahead. However, prices did leave behind a bullish Morning Star candlestick pattern. A push back above the former trendline may hint at uptrend resumption.

Immediate support sits at the 38.2% Fibonacci retracement level at 103.83. Confirming a breakout under this level could hint at downtrend resumption, placing the focus on the May low at 98.22 before the 92.95 – 95.11 support zone come into focus. Around this range is also when the 200-day Simple Moving Average (SMA) may kick in, perhaps reinstating the dominant upside focus.

Let’s look at the 4-hour chart to paint a better picture of what to watch for price action in the week ahead.

WTI Daily Chart

Crude Oil Price Outlook: WTI Trendline Breakout Spells Trouble as Retail Traders Buy

Chart Created Using TradingView

On the 4-hour setting, we can get a closer look at the rally seen in WTI towards the end of last week. In this timeframe, oil has broken above the 20-period SMA. That is now placing the focus on the 50-period equivalent. Confirming a breakout above the latter could shift the outlook increasingly bullish in the days ahead. Above the 50-period line sits the 23.6% Fibonacci retracement at 116.40 before the June high at 123.66 comes into play.

WTI 4-Hour Chart

Crude Oil Price Outlook: WTI Trendline Breakout Spells Trouble as Retail Traders Buy

Chart Created Using TradingView

Crude Oil Sentiment Outlook – Bearish

The IG Client Sentiment gauge (IGCS) shows that about 52% of retail traders are net-long crude oil. IGCS tends to function as a contrarian indicator. Since most traders have turned bullish, this is a sign that prices may continue falling. Upside exposure recently increased by 32.45% compared to a week ago. With that in mind, the combination of overall positioning and recent shifts is producing a stronger bearish contrarian trading bias.

Crude Oil Price Outlook: WTI Trendline Breakout Spells Trouble as Retail Traders Buy

*IG Client Sentiment Charts and Positioning Data Used from June 24th Report

— Written by Daniel Dubrovsky, Strategist for DailyFX.com

To contact Daniel, use the comments section below or @ddubrovskyFX on Twitter