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Market update: Crude oil vulnerable as recent drop pushes retail traders to build upside exposure


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Crude oil prices fell the most over two days since early June; retail traders are increasingly building upside exposure and this is an early warning sign that WTI may continue lower.


original-size.webpSource: Bloomberg


Daniel Dubrovsky | Currency Analyst, DailyFX, San Francisco | Publication date: Tuesday 03 October 2023 06:21

Over the past two days, crude oil prices have fallen more than -3.4%. This marked the worst two-day performance since early June. In response, retail traders have begun increasing upside exposure. This can be seen by taking a look at IG Client Sentiment (IGCS), which often works as a contrarian indicator.

With that in mind, could further pain be in store for oil next?

Crude oil sentiment outlook – bearish

According to IGCS, only about 45% of retail traders are net-long crude oil. Since most are still biased to the downside, this continues to suggest price may rise down the road. That said, upside exposure has increased by 8.8% and 11.11% compared to yesterday and last week, respectively. With that in mind, recent changes in bets warn that the current price trend may soon reverse lower.

IG client sentiment chart


original-size.webpSource: DailyFX

Crude oil technical analysis

On the daily chart below, we can see that WTI has effectively rejected November highs, which make for a zone of resistance between 92.43 – 93.72. This also followed negative RSI divergence, which showed that upside momentum was fading. Since then, prices have extended lower, recently taking out the 20-day moving average.

Oil is also testing a push under the 61.8% Fibonacci extension level at 88.75. Confirming a breakout lower may open the door to an increasingly downward technical bias. Such an outcome places the focus on the 50-day moving average, and the 84.84 inflection point from August. These may hold as support.

Crude oil daily chart


original-size.webpSource: TradingView




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