The weekly overbought/oversold reading for crude oil was north of 200% overbought, marking its highest level going back to 1983.
For seven trading days in a row crude oil prices closed higher with Monday’s (3/9) action seeing the commodity rally more than 4%, building on a 12% up day during Friday’s (3/6) trading session. Monday’s trading brought along with it the widest trading range for the commodity in its trading history when considering high and low daily prices going back to the beginning of data in March 1983. With an intraday high of $119.48 and low of $81.19, the over 38-point price range is more than 15 points higher than the trading day with the second widest high-low price range, March 9th, 2022, at 23.
Considering crude’s rise to a four year high just shy of $120 with intraday trading Monday, investors may be a little surprised to have found the commodity closing Monday’s trading in the mid-$90s. Even with the pullback from those intraday highs, the weekly overbought/oversold reading for crude oil was north of 200% overbought, marking its highest level going back to 1983 and appearing more like a temperature boiling point measure than a securitys overbought reading. Along with crude oil, reformulate gasoline (UJ/) has witnessed similar price volatility as the commodity has rallied to historically overbought levels.
While investors are witnessing a historic rise in crude oil prices and other energy related commodities in the short-term, energy related U.S. equities have sustained an overbought stance for longer than their commodity counterparts. Evidence can be found in a variety of places on the platform, but the weekly distribution indicator for the broader energy equity space helps provide the simplest context.
For those not familiar with the weekly distribution (^WD) indicator, it measures the average weekly overbought/oversold (OBOS) reading for the stocks within a given universe. While short-term in nature and prone to quicker fluctuations than most indicators, the WD can be helpful in identifying an exhausted or extended move to the upside (or downside). Like the weekly distribution curve, the WD ranges from -100% to +100%; though the average readings rarely get above 40% or below -40%, making these levels our typical mark for overbought or oversold positions.
Since early February this year, the WD for the Energy sector (^WDECENERGY) has maintained a reading north of 40% for 22 trading days, marking the second longest run of days in overbought or extended territory for the indicator. The longest period of overbought trading days was from December 2003 to January 2004 for 29 days, and at this point, the WD for Energy would need to maintain a reading above 40% until next Thursday (3/19) before breaking that streak. On a somewhat basic level, though the exact reasons are different, both periods were (and have been) driven by tensions in the middle east causing supply chain concerns for the global energy market.
Given the historic level of extension within energy-related equities, as well as commodities, investors will look for the dust to settle and see prices behave within a more normal trading range before considering new or additional long exposure. Very long-term holders with considerable gains may look to hedge current exposure, while shorter-term holders are likely looking to lock in profits if that has not occurred yet.
