The chart below plots the ratio of crude oil vs. the SPX.
Earlier this year the ratio broke support line (1) which dated all the way back to 1998 – in effect, crude’s nearly 15 year trend of out-performance vs. equities is no longer in play.
Since that break of support the ratio has continued to fall.
We believe it could fall further as well, potentially as much as 25% over the intermediate-term, given its next noteworthy support is in region (A), a location where numerous swing highs and lows have occurred for crude on a relative basis since the 1980s.
Until support region (A) nears, we would prefer to avoid crude on the long side as we believe it will continue to under-perform other risk asset areas.