Crude Oil Prices Resilient Despite Reversal Signal as Retail Traders Turn Bearish

Crude Oil, WTI, IG Client Sentiment, Technical Analysis - Talking Points:

• WTI crude oil remains resilient despite bearish technical signal
• This is as the rising trendline from late 2021 is fast approaching
• Retail traders recently turned bearish oil, will this bode well?

Crude Oil Technical Analysis

Crude oil prices remain in a fairly consolidative state. A bearish Evening Star candlestick pattern formed last week, offering a preliminary reversal signal. However, downside follow-through has been noticeably absent, undermining the Evening Star. Immediate resistance appears to be the 113.72 – 116.61 zone that was established in late March.

Recent consolidation does mean that WTI is inching closer towards the key rising trendline from the beginning of December. The latter has been maintaining the broader upside focus, with tests occurring in April and earlier this month. From here, the trendline is also closely aligned with the 38.2% Fibonacci extension at 103.83.

Clearing downward would expose the 92.95 – 95.11 support zone, but not necessarily shift the broader horizon bearish. Falling to that zone would mean a more neutral setting, a pivot from the mostly upward stance since the end of last year. Falling under could be that bearish shift, exposing the 85.38 inflection point. Otherwise, clearing resistance places the focus on the 124.76 – 129.41 zone above.

Chart Created Using TradingView

Crude Oil Sentiment Analysis - Mixed

Taking a look at IG Client Sentiment (IGCS) shows that about 43% of retail traders are net-long WTI. In fact, it was only recently that most traders turned bearish on the commodity. IGCS tends to function as a contrarian indicator, meaning this could bode well for energy prices down the road. For now, upside positioning increased 7.23% versus yesterday as downside exposure increased 5.64% over the same period. The combination of current sentiment and recent changes is offering a further mixed bias.

IGCS Chart Pulled from May 23rd Report

--- Written by Daniel Dubrovsky, Strategist for DailyFX.com

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