We’ve Seen This with Crude Before. Expect the S&P to Rebound This Week

"Formula for Success: Rise early, work hard, strike oil"

-J. Paul Getty

This quote from the founder of the Getty Oil Company may no longer be relevant. Crude Oil prices are down about 18% since November 25th, and now hover around $35 a barrel. In Saudi Arabia those levels are still profitable to drill, but in North America they are not.

The largest Energy Sector ETF, the Energy Select Sector SPDR (XLE) is down almost 10% since December 1st and the Sector has been a huge drag on the broad market. It has been especially bad this past week with the S&P 500 dropping about 4%. Is there any relief coming?

EidoSearch analyzed the last one month trading patterns in both the S&P 500 AND Crude Oil to find times historically where both were trading down with similar trajectory at the same time, and to see how the S&P has responded.

We found 9 similar instances historically dating as far back as 1984. In 8 of the 9 instances, the S&P 500 is up in the next 1 week and the average return is a whopping 3.6%. This is even in the face of Crude continuing to trade down in 6 of the 9 instances.

The only match where the S&P 500 is not up in the next week is from November 1991, and it only fell an additional -0.4% (Crude was down another -4.5%).

The chart below shows the current one month patterns for both Crude and the SPX that we analyzed, as well as the one week (5 day) forward projection.

Have a great week!