On Sunday night, Crude Oil $WTI Crude Oil - main 2604(CLmain)$ reached the extreme overbought conditions that I highlighted using the chart below in my Substack Notes and on X. For the paid community, I provided that same analysis in our private chat, including the weekly levels where a reversal was most likely to occur.
The overbought conditions relative to the Bollinger Bands reached historic extremes, surpassing levels seen during the 1990 Gulf War and the 2022 invasion of Ukraine. Unlike the price-driven peaks of 2008, this overbought conditions are the result of rapid price action fueled by extreme sentiment and a geopolitical conflict.
The high of the week so far has been $119, near the modeled level of $122.9, the price has retraced since to $88, but there is still a lot of impact in the stock market. Today’s edition is a special about oil and what has happened in previous geopolitical crisis related to oil.
The updated chart following the extreme condition is below with other special charts.
We will analyze today the 1973 Yom Kippur War, the 1990 invasion of Kuwait, the 2022 invasion of Ukraine, and how those historical precedents frame today’s critical situation.
Before continuing let’s recall my note from the Weekly Compass published on Saturday about the $S&P 500(.SPX)$ :
“Bearish moves rarely occur in a straight line, we have seen that during these recent weeks; therefore, a bounce is likely for the beginning of next week. In the unlikely event of a gap-down and continued selloff, the case actually becomes more bullish. Extreme oversold conditions often mark solid bottoms, as we saw in the previous 2024 and 2025 crashes.”
The extreme oversold conditions happened in the modeled range of the Support and Resistance levels shared on Friday, where $6,597 was identified for the $E-mini S&P 500 - main 2603(ESmain)$ as an extended bearish level; the actual low was $6,584, just a few points from our modeled level. For the SPX, the rapid sell-off reversed on Monday morning, leading to a rally toward our weekly bullish target of $6,857.2.
$Invesco QQQ(QQQ)$ moved with equal precision, bottoming at our support zone of $590.1 before bouncing to the $611 weekly bullish target. Both indices validated the reversal thesis (breach of the CWL) outlined in our setups.
As posted last week: Volatility is high today, but the accuracy of the modeled support and resistance levels continue. Moving forward, we are introducing a key addition to our high-probability setups as a metric of risk, but first, let’s analyze the current context for Oil.
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