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All Eyes on Crude Oil … As Usual

Stock-Markets / Volatility Jul 09, 2008 - 08:32 AM GMT

By: Black_Swan

Stock-Markets

Best Financial Markets Analysis ArticleAll those investors on and off Wall Street whose focus is on buying stocks must have sweat through a closet full of shirts by now. The outlook for the stock market is not pretty. And when second quarter earnings season arrives, well, things could get even uglier…they say.

It’s a tough job playing cheerleader for a losing team and waiting for a turnaround, even when Tout TV is on your side. Just ask those die-hard Cubs fans about that if you’re wondering. Unfortunately, it seems to us like it could be a while before this turnaround in stocks materializes.


Some analysts, however, are looking to the VIX – a measure of options volatility on the S&P 500 index. The VIX has become known as a measure of fear and/or uncertainty in the stock market. When the VIX is lower or moving lower, traders’ fears are low or subsiding. But when the VIX is high or rising, well, that’s another story.

Right now the VIX is at moderate levels, but the daily trend is up. The fear is of a slowly and steadily rising VIX that keeps investors uneasy. The cheerleaders are hoping for a sharp spike higher to, say, about 30 , coupled with a sharp spike lower in the S&P 500 index. This would theoretically washout all the negativity and give investors a chance to start fresh and get back on the horse.

This idea is all well and good, but lately the VIX has been closely tied to crude oil prices. And if crude oil prices ease up for a while, as they’ve done this week, then uncertainty (fear) may recede for a little while until earnings seasons gets in full swing.

Bottom line: a spike in crude oil could lead to a sharp spike in the VIX. But if crude oil prices soften and the pressure comes off of stocks for a bit and then earnings season turns out to be a total mess, we probably will see a slowly and steadily rising VIX fuel ongoing fears in the marketplace.

You know the old adage: As oil goes, so goes everything else! Well, maybe it’s not an adage on second thought, but it could be soon.

By Jack Crooks

Black Swan Capital LLC

http://www.blackswantrading.com/

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