One of the most interesting and/or maddening things about the stock market is that the focus can turn on a dime. One day traders are focused on the Fed, the economy, and/or earnings, and the next, well, it can be just about anything.
Such is the certainly case at the present time. Up until Friday, the stock market had been driven by the price of oil on a daily basis. Wall Street's computers had created correlation trades that tied buy and sell programs in the stock market to the movement in oil futures.
The thinking was fairly straightforward as nobody could be completely sure about the extent of the fallout from what can only be described as a crash in crude prices. On a micro basis, there was concern about the number of marginal companies that would be forced to fold should oil keep falling, the defaults in junk bonds, and the ensuing impact on the banks. And from a macro point of view, the worry was that the nation's job growth would suffer and the "escape velocity" that the Fed has spent five years and trillions of dollars establishing, could falter.
While this may not make a lot of sense to individual investors, the idea is that if crude were to continue to dive, the economic fallout would likely worsen. And then conversely, if the crash in crude prices subsides, much of the worry as to what might happen next could be removed. Enter the correlation trade, where stocks and oil are joined at the hip.
The key here is that Wall Street does not like surprises. History proves that the market can "deal" with just about anything given enough time and information. It is the surprise factor that oftentimes causes traders to sell first and ask question later. ...
