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

[MongiIG]

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.

 

Source: Bloomberg

 

Shares Commodities Petroleum WTI Oil Price of oil

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

 

Source: 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

 

Source: TradingView

 

 

 

This information has been prepared by IG, a trading name of IG Australia Pty Ltd. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.