Why stock investors need to start paying attention to oil again

It looks like stocks and crude are starting to pay closer attention to each other.

In the past few months, as stocks surged while crude stagnated and then slumped, the commodity and the measure of large-cap stocks actually began to experience an inverse relationship. That is, on a day when oil settled lower, stocks were more likely to rise than to fall.

Since then, the pair has begun to enjoy a closer relationship. Over the past 60 sessions, WTI crude oil and the S&P 500 have seen a correlation of about 0.28. While this hardly suggests that they are identical twins, it does imply that oil's daily move is now more relevant to equities.

"The dollar has come under some pressure of late and this pushes up oil as well as the U.S. dollar value of offshore earnings," Max Wolff, market strategist at 55 Capital, wrote to CNBC. "This generally increases correlation."

In other words, currency moves are driving both stocks and oil.

But for a truly brotherly relationship between the S&P and crude, one must go back to early 2016, when oil's fall into the mid-$20s, and subsequent rebound, led it to be a primary focus for stock investors.

Looking forward, traders say oil is likely to remain in its recent wide range.

Most traders "can't see any reason for it to go any higher. And technically, between $48 and $54 seems to be a very comfortable spot for crude oil right here," Harvest Volatility Management portfolio Manager Dennis Davitt said Tuesday on CNBC's "Trading Nation."

From a fundamental perspective U.S. producers have become so efficient, "they can operate at $50 a barrel, and they will just keep flooding the market as long as the price keeps staying at these levels."

Crude oil ticked higher on Thursday morning, after settling on Wednesday at $51.15.


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Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Michael Santoli

Michael Santoli joined CNBC in October 2015 as a Senior Markets Commentator, based at the network's Global Headquarters in Englewood Cliffs, N.J.  Santoli brings his extensive markets expertise to CNBC's Business Day programming, with a regular appearance on CNBC's “Closing Bell (M-F, 3PM-5PM ET).   In addition, he contributes to CNBCand CNBC PRO, writing regular articles and creating original digital videos.

Previously, Santoli was a Senior Columnist at Yahoo Finance, where he wrote analysis and commentary on the stock market, corporate news and the economy. He also appeared on Yahoo Finance video programs, where he offered insights on the most important business stories of the day, and was a regular contributor to CNBC and other networks.

Follow Michael Santoli on Twitter @michaelsantoli

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