The stock market closed higher this week, with the S&P 500, Dow, and Nasdaq all posting gains as bond yields stabilized and oil prices rose. However, this rapid ascent has pushed several stocks, particularly in the energy sector like Valero Energy, Phillips 66, and Marathon Petroleum, into “overbought” territory, as indicated by their Relative Strength Index (RSI) exceeding 70. Industrial software maker PTC and other diverse names like Vylor and Everpure also registered high RSI readings, suggesting they might have risen too far, too fast.
The stock market concluded the week on a high note, with major indices recording gains as bond yields stabilized near 24-year peaks and oil prices experienced a modest uptick. However, this swift ascent has raised concerns that certain stocks may have surged too rapidly, pushing them into overbought territory.
The S&P 500 led the charge with a weekly gain of 1.2%, closely followed by the Dow Jones Industrial Average, which advanced 0.9%. The Nasdaq Composite also contributed to the positive sentiment, adding 0.6%. This broad market rally, while welcomed by many, has notably propelled several S&P 500 components, particularly within the energy sector, into 'overbought' status.
This designation is based on the Relative Strength Index (RSI), a widely-used momentum indicator that gauges the speed and magnitude of price changes. Stocks are typically considered overbought when their RSI reading surpasses 70, signaling that they might be due for a correction.
A significant factor fueling the rally, especially in energy, was the movement in oil prices. Hurricane Isaias caused disruptions to U.S. oil production in the Gulf of Mexico, while geopolitical tensions escalated with Iran's increased tanker attacks in the Strait of Hormuz. These developments contributed to West Texas Intermediate crude futures rising by 0.81% and international Brent crude futures advancing by 2.42% over the week.
As expected, energy stocks mirrored oil's ascent. Petroleum refining giants Valero Energy and Phillips 66 saw their shares climb by 6.8% and 8.8%, respectively. Their RSI readings reflected this rapid appreciation, with Valero registering 79 and Phillips 66 hitting 76. Marathon Petroleum experienced an even more dramatic surge, up 35% for the week, pushing its RSI to an elevated 82. Piper Sandler, acknowledging the improved market conditions, recently upgraded its third-quarter earnings estimate for Marathon Petroleum to $25.65 from $24.45, citing enhanced refining captures, while maintaining an overweight rating.
Beyond the energy sector, industrial software manufacturer PTC also demonstrated significant upward momentum, soaring 35% over the week to reach an RSI of 79. This surge followed the announcement earlier in the week that Schneider Electric had agreed to acquire PTC in an all-cash transaction valued at approximately $22.6 billion, at a price of $205 per share.
Other names identified as overbought include the seed and genetics firm Vylor and the data storage company Everpure, signaling that the recent market enthusiasm has spread across diverse sectors.
