Energy Sector and the S&P: Changing Relationships?

How does stock performance in the energy sector affect short-term performance in the S&P 500 Index? It's a relevant question, given recent interest in the new WTI crude oil ETF (USO).

I went back to March, 2003 (N = 784) to see what happens after two-day rises and declines in the energy sector (XLE). When XLE is up 2% or more in two days (N = 113), SPY averages a gain of .01% (59 up, 54 down) the next day. This is weaker than the average one-day gain of .06% (436 up, 348 down) for the sample overall.

Conversely, when XLE is down 2% or more in two days (N = 83), SPY averages a gain of .16% (47 up, 36 down) the next day. Even more impressive, SPY's gain over the next three days averages .47% (54 up, 29 down) when we have two-day weakness in XLE--much stronger than average (.17%; 457 up, 327 down).

It thus appears that strength in XLE is associated with subnormal performance in SPY and weakness in XLE leads to outperformance. Since 2005, however, this pattern has remained only partially intact. XLE strength leads to SPY underperformance (average gain of .00; 31 up, 34 down) the next day, but XLE weakness has also lead to SPY underperformance (average gain of .00 (27 up, 27 down).

I will need to follow this up with an analysis of oil prices themselves vs. the S&P. My sense is that, for energy as for interest rates, stocks are no longer responding the way they did earlier in the bull market. These shifting intermarket relationships strike me as extremely significant.