Will July 2022 See a Major Correction in the Stock Market ?

Last October, I predicted that a period from late Winter 2021 to late Spring of 2022 would see a surge of price volatility in oil - see https://lnkd.in/gfGzxAsz. This duly occurred with the first spike in price variance occurring on 25 November 2021. The Ukraine war increased whatever underlying instability was present in oil markets, however, the fact is that initiation of the current volatile phase occurred well before the start of the war.

The current surge in oil price volatility falls into an oscillating sequence that I have observed and reported on since 2009 - see the article linked to this post and my interview with Jim Kunstler https://lnkd.in/gCDse-GC. Previous phases of notably heightened oil price volatility have occurred in 2001, 2004, 2008, 2011, 2014, and 2018 - roughly on a 3-4 year cycle.

In my article of October 2021 I also speculated that the surge in oil market volatility will be followed by a correction, and perhaps a crash, in the stock market. This is because this is what happened following the previous 2001, 2004, 2008, 2011, 2014, and 2018 phases of instability in the oil markets. In 2022 we have seen a 20-30 % drop in stock prices so far - though not what could be described as a crash - more of a bear market.

I have done some “back of the envelope calculations” based on the timing of peak of the previous volatile phases in oil price since 2000 (there have been 5) and how long, on average, it took for the effect to propagate into the stock markets. I estimate that the mean lag between the effect in the oil market and peak response of the stock market was 142 days, with a standard deviation of 138 days. 

The current volatile phase in the oil markets began in late November 2021, peaked on February 10 2022. Oil price appears to remain somewhat volatile, but shows signs of returning to a lower level of volatility in June 2022. If we take the peak date of February 10 and add on the 142 day lag period, then we might anticipate that the likeliest timing of any major response in the stock market is going to be most probable sometime around mid July 2022. Obviously, with a standard deviation of 138 days, one can not be confident in this prediction with a high degree of precision. Nonetheless, I’m keeping my own powder dry for the next few months.