Oil’s crash is historic – this is the most oversold oil has been from 1983 – present. Will oil’s crash lead to “contagion” for the U.S. stock market? Meanwhile, some traders think that the S&P 500 is making an “inverted head and shoulders” bottoming pattern.
*We usually ignore such chart patterns. These patterns work perfectly with 20/20 hindsight, but are no better than a coin toss in real-time.
Let’s determine the stock market’s most probable direction by objectively quantifying technical analysis. For reference, here’s the random probability of the U.S. stock market going up on any given day, week, or month.
*Probability ≠ certainty.
Oil’s capitulation selling?
A quick glance at oil’s chart reveals how intense oil’s crash really is.
Oil crashed more than -7% on Tuesday. Is this a sign of “capitulation selling”? Is oil’s bottom in?
Here’s what happened next to oil when it crashed more than -6% to a 1 year low.
*Data from 1983 – present
As you can see, oil’s returns over the next 3 months lean bearish.
But is this a bearish sign for the U.S. stock market? Will this lead to “contagion” for U.S. stocks?
Here’s what happened next to the S&P 500 when oil crashed more than -6% to a 1 year low.
As you can see, the stock market’s forward returns aren’t consistently bullish nor bearish. Oil’s crash is mostly an irrelevant factor for the stock market.
Russell will make a “death cross”
The Russell 2000’s 50 day moving average will fall below its 200 day moving average tomorrow. This is called a “death cross”.
And right on cue, financial media picks this up as BEARISH! From CNBC:
Is this bearish for the stock market?
Here’s what the Russell 2000 did next when it made a “death cross”.
