Is oil overvalued?

Oil has climbed high since the lows at -37.3 where we saw oil go negative for the first time we negative crude oil is now trading at 36.64. This price rise could be attributed to the extension of output cuts from oil producers in particular OPEC members announcing that all OPEC nations will continue to cut output by 9.7 million barrels a day. However, with fears of a second COVID 19 wave on the horizon markets have fallen sharply. We will look into some technical analysis for crude oil and determine if crude oil is currently overvalued.


The Moving Average Convergence (MACD) is a trend momentum indicator that shows the relationship in this case between the 12 day and 26-day moving averages. It is commonly used as a buy or sell signal if the 26-day signal line in orange crosses the 12-day MACD line in blue, It indicates a bearish selling signal. This is because of the longer 26-day signal line has diverged from the short term moving average and downside momentum is occurring. This is what has occurred in the above graph with oil pointing towards an a possible decrease in price. However before you can use market insights to better your decision making its important first to learn how to trade.

Arnaud legoux moving average

The Arnaud Legoux moving average in my opinion is the king of all the moving averages for two primary reasons it is highly responsive to movements in the tread and it is also a-lot does a better job at smoothing out a tread. This was a common drawback for investors using traditional moving averages. Only made in 2009 the Arnaud Legoux moving average is new to the moving average family but insanely effective, as it is swifter eliminating the price lag that is often associated with moving averages. The fundamentals of the moving average remain the same however if the stock price in blue line moves below the Arnaud Legoux moving average in the red line it highlights a bearish trend is occurring indicating prices may fall. This is the case with oil as we can see the stock price has started to cross the Arnaud Legoux moving average.

Relative Strength indicator

The Relative Strength Indicator (RSI) is a specific indicator that is used to detect if a stock is oversold or overbought. The RSI is calculated using average price gains and losses over a given period of time. The default time period is 14 periods with values bounded from 0 to 100. A reading of above 70 means the stock is overbought highlighting a bearish signal that the stock might fall in price. This is the case with the Amazon indicating that it might be overbought, as it is right at the top of the RSI Indicator level at 61 indicating that it is likely to fall in the future. Previously we did similar analysis with Beyond Meat before in order to best understand where the price might head before the stock skyrocketed to where it is now. Likewise our oil stock price analysis yields similar details.

Placing these indicators into consideration we believe that crude oil is overvalued in the short term. With all this said it is always important to remember to diversify your investments to ensure that you are less sustainable to market volatility and rapid market movements. Also if you are new to investing make sure you look into trading with a demo account to practice, more information on that can be found here.


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