By now everybody knows oil is down massively since recent highs in early October. The pain trades seem to continue, including the crowded long oil trade, but it is interesting to note how fast oil has fallen as well as the fact it is approaching some interesting levels here.

The longer-term trend line since early 2016 is around these levels. 60 is a big level.

The zoomed in chart shows a possible hammer candle is formed today. One candle doesn’t change the “fundamental” picture, but it could be a short-term reversal worth watching. Sentiment surrounding oil is very negative at the moment.

Oil volatility index, OIV, has spiked during this recent sell-off. Oil volatility is trading at levels not seen since May 2017. Note that oil made a local low and bounced higher on every bigger spike in the OIV index since 2016.

Remember how SPX bounced with spikes in VIX recently?

SPX and oil have moved in tandem but this relationship has widened lately. Maybe time for a mean reversion trade?

The SPX vs oil chart as a normalized spread.

Source: charts by Bloomberg