Oil Drillers have had little to smile about over the past years. Could this trend be about to end? A pattern is in play that highlights a counter trend rally could be near.
Below looks at the Oil Drillers (XOP)/ S&P 500 Ratio over the past couple of years-
CLICK ON CHART TO ENLARGE
In a front page article, the WSJ takes aim at the "biggest market puzzle" of our times: the bizarre disconnect between growth and inflation, where on one hand government reports of strong, coordinated, global economic growth and tumbling unemployment (at least in the US and Japan) are offset by the complete lack of concurrent reflation. Some examples:
With spiking above 13, US equity markets appear to be suddenly waking up to the potential that The Fed's constant stream of positivity was smoke and mirrors all along and a September full of massive event risk probably doesn't warrant buying the record high...
As VIX breaks out...
S&P 500 is tumbling towatfs its 50-day moving average...
And Small Caps have plunged through the 50- and 100-day moving averages....
Yesterday morning, with the US closed for holiday but with S&P futures trading modestly lower on the latest set of North Korean geopolitical fears, we asked "is this time different", referencing last week's similar setup, when futures gapped lower on Monday after the Kim regime shot a missile over Japan, only to surge into the end of the week.
As Deutsche Bank warns in a note over the weekend, the S&P 500 is "long overdue for a pullback" for one simple reason: the BTFDers (and central banks) have overextended the current rally in the S&P 500 to the point where it is now one for the history books. Traditionally, 3-5% selloffs in the S&P 500 have occurred on average every 2-3 months.