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With the S&P 500 closing Friday just 2.7% below last summer’s all-time high, it is safe to say that the bulls have escaped the bears’ grasp. But as I’ve been saying for some time now, the oil correlation trade remains fairly well entrenched. And since oil too has rallied in impressive fashion this year, it is hard to get overly excited about the potential for what by all rights looks like new bull cycle. Cutting to the chase, I remain concerned about what will happen at the corner of Broad and Wall if oil starts to retrace some of the recent pop.

On that note, it is mildly encouraging that stocks have not followed the price of oil around like a little puppy dog lately. In fact, stocks actually rose during the latter half of last week while oil pulled back. And while I’m not willing to declare the correlation trade dead just yet, this IS a step in the right direction.

Before we leave the subject of crude, it is important to note that oil’s bounce, which is likely to wind up in the “dead cat” category when all is said and done, appears to be in trouble. At issue is the fact that Saudi Arabia said last week that the only way it would cut production is if Iran agrees to also cut back. And since these two countries aren’t exactly best buds and most of the Middle East needs the cash from the sale of their oil, it isn’t much of a stretch to think that oil could be resuming its rude move lower.

US Oil Fund (NYSE: USO) – Daily

As I mentioned at the outset, the good news is that stocks have ignored crude’s decline – at least for now. And it would appear that the key to the recent gains in the stock market really isn’t about oil but rather all the Fedspeak central banker talk.

Has The Fed Become the Focal Point Again?

To be sure, Janet Yellen deserves much of the credit for the S&P 500 closing last week at the highest levels of the year. You see, the Fed Chair surprised markets Tuesday with a decidedly dovish tone in her speech to the Economic Club of New York.

In short, Yellen said that caution in raising rates is “especially warranted” at this time. In response to this and other rather dovish comments – including the words “further stimulus” (and to be honest, I’m still shaking my head on that one) – traders immediately scratched the potential for an April rate hike from the board and wondered aloud whether the Fed is still bent on returning rates to more normal levels any time soon. And some are even arguing that the dollar has become a focal point as a falling dollar cures all kinds of global ills.

With the Yellen Fed appearing amenable to doing whatever it takes to get some inflation percolating – and even appearing willing to overshoot the Fed’s target here – investors are reminded that stocks remain the only game in town.

So, once again, it looks like the central bankers have saved the day for the stock market. It happened in 2014 (Bullard). It happened in 2015 (Super Mario). And now it has happened again in 2016 (Yellen).

The trend is now quite clear. Stocks enter a corrective phase for any number of reasons. And then, right about the time things start to look ugly, the central bankers step in and say whatever they need to say in order to keep “asset prices” moving higher. All in the name of pushing inflation to their “target” of 2%.

One of the big questions in my mind is how long can the global central bank intervention game continue? Sure, it is great to see the corrections in the stock market stay shallow. But can we really assume that this game will continue indefinitely? Time will tell, I guess.

Looking At the Bigger Picture

Looking at the stock market from a longer-term perspective, the weekly chart of the S&P 500 shows that stocks have made no progress since the fourth quarter of 2014. In other words, stocks have been moving sideways now for 18 months.

S&P 500 – Weekly

Here’s my take on the situation. Stocks have been supported on the downside by the global central bankers. Each and every time the market starts to decline the central banker cavalry rides. This causes traders to remember that the Fed usually gets what they want and a rally quickly ensues. So, the “Fed Put” would appear to be alive and well.

However, the rallies have tended to fail when stocks approach the old highs. Why? In short, because (a) valuations remain high, (b) corporate profits have declined for 5 straight quarters, and (c) the threat of systemic risk from the oil bust.

As such, it looks stocks are trapped in a trading range that is about 15% wide. And until one of the teams can break on through to the other side, investors should probably play the game accordingly.