Mission Accomplished: Oil Just Printed A “Shooting Star On Steroids”
Mission accomplished?
In mid-February (here) we outlined our oil squeeze logic, writing: “It’s been trading above the 200-day MA for weeks, and a light golden cross (21 over the 200-day) has formed. A clean break above the trend line could unleash a sharp squeeze.”
We did not expect oil to explode in this fashion, but remember that oil typically mean-reverts over time, and chasing extremes is usually a very costly strategy. Notably, we essentially kissed the 2022 highs during today’s panic spike. The squeeze has now gone far beyond the technical breakout.
Source: LSEG Workspace
Huge candle
Today’s oil candle is absolutely huge, a shooting star on steroids. The psychology suggests the move is becoming very extended. Price action is extreme, so watch today closely as this could mark an exhaustion day. As always, confirmation is needed.
Source: LSEG Workspace
Last time
The last major oil top occurred in March 2022. Back then we saw a similar (though smaller) shooting star, followed by an aggressive reversal lower.
Source: LSEG Workspace
The vol shock
Oil volatility closed at 103.6 on Friday (today’s update pending). The market is pricing roughly 6.5% daily moves going forward. That is extreme, and remember that volatility cares about pace, not direction. Expect erratic price action, both ways, for longer.
Source: LSEG Workspace
Everybody wrong
Morgan Stanley's Martijn Rats:
"The last few years have been a steady exercise in market humility. “Oil can’t go negative.” It did. “Russia will always be a reliable supplier of gas to Europe.” It wasn’t. “Hormuz is too important to actually stop.” Until it did."
