Trader Talk

Here's what happens to stocks when oil drops 50%

Pisani: Macro drags reversing
Pisani: Macro drags reversing

We are in rare territory indeed on the oil front. West Texas Intermediate has dropped more than 50 percent in the last six months.

According to our partners at Kensho, this has happened only five times since 1980: 1987, 1991, 1999, 2002, and 2009.

Six months after those events, the S&P 500 was up four of the five times, with an average gain of 3.7 percent. Perhaps more importantly, WTI was positive six months later all five times, and was up 52 percent on average.

Read that carefully: All five times this has happened, WTI has been up six months later. And up 52 percent on average.

Read MoreBrent dips below $50 for first time since May 2009

That should give some comfort to those who have argued, as I have, that oil is more likely to be in the $50s or $60s in the second half of the year than it is to be in the $30s.

None of this answers the big questions: What's causing the drop?

I mean, nothing else is down 50 percent. This seems very specifically related to oil, not so much the global economy. The conventional explanation that this is a "supply issue"—with a small part of the drop due to lower global demand from a slower China and Europe—makes some sense on the surface.

The problem is there's something that smells funny about both these explanations. Supply and demand certainly makes sense, but this fast? Oil was $100 in August. It dropped 50 percent in 5 months, because supply was suddenly stronger?

I understand all the people who feel that manipulation of the oil market by nefarious traders must be a factor in this drop. I do understand their feeling, but I don't think that's the primary factory.

I think the primary factor was a dramatic change in rhetoric from Saudi Arabia. The leadership made it clear it was not going to support the price. There is a global shift in production, and Saudi Arabia is not going to cut output. That shifted everyone's thinking.

Read MoreSupply may not be oil's only problem: Lloyd Blankfein

One thing's for sure: This isn't 2008, when we saw oil go from $145 to $35, a 75-percent drop. It certainly isn't driven by a weak U.S. economy. Consumer confidence is stronger, and the job market is too.

With oil stabilizing and bond yields up, two of three macro drags have reversed. Only the euro remains weak. But markets are so oversold that two out of three is enough for a rally in Europe and the U.S., at least at the open.

I said yesterday that for the markets to stabilize we would need oil to stabilize, but we also need to change the conversation toward the improving U.S. economy. Two pieces of news on that front:

1) JC Penney reported a 3.7-percent rise in same-store sales for the holiday season, and also gave a fourth quarter sales projection at the upper end of its previously projected range of 2 to 4 percent. That is a big improvement from the third quarter, when sales were flat, and a lot better than expected. Many were expecting sales to be flat to up 1 percent.

Read MoreADP: US private sector created 241,000 jobs in Dec vs 226,000 expected

Given the stock is down more than 30 percent since October, and that this is one of the most shorted stocks in the retail space (35 percent of the float is shorted), it should see a bounce today, as should most of the department stores.

We will get other reports in the next day or so from other retailers, including Barnes and Noble, American Eagle, Pier One, Signet Jewelers, and Urban Outfitters. We may also hear from Macy's and Target. Tiffany, Gamestop, and Best Buy should report next week.

2) American Express was upgraded to "buy" at Goldman Sachs for several reasons: an improving economy (which could drive revenues up 7 percent), rising rates (many loans are floating rate), and loan growth (expected to be up 5 percent).

Disclosure: CNBC's parent NBCUniversal is a minority investor in Kensho.