The S&P 500 closed at its lowest level in the past two weeks, confirming a clear lower high. This development should put investors on high alert. Are we headed for new price discovery, or will the market revert to its previous trading range? Let’s examine the evidence critically.
The primary challenge facing U.S. equities appears to be oil prices, which have surged from $60 to a shot of $120 per barrel. Now trading at 97.
Currently, the correlation between crude oil and equities is nearly a perfect negative 1:1—meaning as oil rises, stocks tend to fall in lockstep. Based on the S&P 500’s current price, we’re now down over 5% from the all-time high reached on January 28th.
In summary, we’re testing highs that could offer a genuine value assessment. But is the market as a whole signaling deeper trouble ahead? Market participants collectively seem unprepared for sustained downside risks.
For stability to return, oil prices will need to decline; otherwise, a renewed inflationary surge could pressure all major benchmarks. And of course, we know how focused—and how effective—central banks’ tools are in combating metrics like U.S. CPI.
What do you think: Could this correlation persist, or are there overlooked factors that might break it?
Volatility Futures Term Structure * Backwardation
The volatility curve is still in backwardation, with the front month contract well above the back month. Most Money managers, I am including myself here do not enjoy allocating capital into an inverted curve.
When that curve re-inverts, it will be a significant signal. That is the one indicator I will be watching closely if the market attempts a turn.
If you want to download the indicator for TOS tell me on discord by visiting randbots.com I will send you the link
