Refiners Edge Toward Upper Bollinger Band, Possibly Overbought



Short-term moving averages suggest uptrend for refiners, downtrend for coal firms and drillers

As the table below shows, the 20-day, or short-term, moving averages exceed the 100-day, or long-term, moving averages for most refiners. This includes Tesoro (TSO), which was an exception last week. This indicates a possible uptrend in these stock prices.

In contrast, oil drillers such as Diamond Offshore Drilling (DO) and coal mining firms such as Consol Energy (CNX) show the opposite trend in moving averages. CNX especially seems to be experiencing a downtrend.

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Relative strength index indicates refiners are probably overbought

The RSI (relative strength index) is a momentum indicator that helps determine when an asset is oversold or overbought. An asset is considered to be overbought when the RSI approaches 70. At this point, there’s a risk that you may see a pullback from its overvalued state. Similarly, as the RSI approaches 30, the asset is probably oversold and could become undervalued, causing an eventual upward revision in its price.

As the above table shows, refiners Tesoro (TSO) and Valero (VLO) have RSI values exceeding 70, indicating the stocks may be overbought, particularly given their recent rise. These stocks may eventually experience a downward correction. In terms of leverage, refining and marketing firms in the Energy Select Sector SPDR ETF (XLE) have an average debt-to-total capital ratio of 0.32x, lower than that of firms with coal operations.

In contrast, Consol Energy (CNX) and Noble Energy (NBL) have RSIs below 30, indicating the stocks may be oversold. Although an upward revision is possible for these stocks, the weak outlook for coal could mean further losses for companies like Consol Energy.

Price position with respect to Bollinger bands

The Bollinger band is a band that is plotted two standard deviations outside a simple moving average. These bands tend to be self-adjusting with respect to market volatility conditions. Bands widen with an increase in volatility and contract with a decrease in volatility. The close prices move toward the upper band the more overbought the security is, and vice versa.

As seen from the table above, the prices for Consol Energy (CNX) and drillers such as Diamond Offshore Drilling (DO) and Ensco PLC (ESV) are leaning toward the lower Bollinger band, indicating a possible oversold condition.

On the contrary, the prices for refiners such as Marathon Petroleum Corp (MPC) and Tesoro (TSO) edge more toward the upper Bollinger band. This indicates a possibly overbought state of these stocks.


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