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Market update: Crude oil rally in focus as retail traders turn net-short for first time since April

Crude oil prices have rallied over 17 percent since bottoming; retail traders now majority short for the first time since April and this hints at an increasingly bullish contrarian conviction.

Source: Bloomberg

Crude oil sentiment outlook - bullish

Crude oil prices have rallied over 17 percent since bottoming in the middle of June. So far this month, WTI is up over 13%. If gains are sustained, this would mark the best 20-day period for oil since January 2022. In response, retail traders have continued to increase downside exposure. This can be seen by looking at IG Client Sentiment (IGCS), which tends to function as a contrarian indicator.

The IG Client Sentiment (IGCS) gauge shows that about 47% of retail traders are now net-long crude oil. This is the first time the majority has been biased to the downside since April. Due to this change in bias, the gauge hints that prices may continue rising.

This is as downside exposure has increased by 7.73% and 44.89% compared to yesterday and last week, respectively. With that in mind, the combination of overall positioning and recent changes produces a stronger bullish contrarian trading bias.

Crude oil IG client sentiment chart

Source: DailyFX

Crude oil technical analysis

WTI crude oil prices have confirmed a breakout above the 200-day Moving Average (MA). This is increasingly indicating that a longer-term shift in orientation might be taking shape. That said, there remains a notable obstacle ahead. That would be the 81.44 – 83.48 resistance zone. If this range holds and prices pivot lower, this would introduce a neutral technical bias.

In such an instance, a rectangular trading pattern could emerge as prices fall back to the 63.60 – 65.72 support zone. But, getting there would entail keeping a close eye on the near-term rising support line from late June – the red line on the daily chart below. Otherwise, continuing higher from here places the focus further beyond to the 92.43 – 93.72 resistance zone from November.

Crude oil daily chart

Source: TradingView

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The information 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 Bank S.A. 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 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. See full non-independent research disclaimer.

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