What 10 Past Oil Shocks Tell Us About 2026VIEW IN BROWSER By Michael Salvatore, Editor, TradeSmith Daily In This Digest:
Our Bear Market indicator is 11-for-11 – and it’s flashing again What 10 past oil shocks can teach us about what’s happening in 2026 This domestic coal producer has a bullish seasonal window coming up Iran has a tight deadline to make a deal…As President Trump has been making abundantly clear on social media, he intends to destroy bridges, oil wells, and even water desalination plants if the regime doesn’t reopen the Strait of Hormuz by 8 p.m. ET tomorrow.. Iran’s official stance on a ceasefire: It won’t happen without reparations for damages and promises of no future attacks. But this morning, Reuters reported that Pakistan has sent the outline of a ceasefire deal to the U.S. and Iran. We can’t know if it will be a success. From a humanitarian perspective, we can only hope. But from an investing perspective, we can – and should – do a whole lot more than hope to navigate this situation. Here at TradeSmith, we rely on cold, hard data – as well as our battle-tested software tools and analytics – to come out ahead. And right now, no matter what the latest headlines say, the picture is firmly bearish.
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Every major U.S. index is now in a Short-Term Health Red Zone…As regular readers know, our Short-Term Health indicator is designed to catch fast momentum shifts in the market. Right now, the S&P 500, the tech-filled Nasdaq 100, and the Dow are all in the Short-Term Health Red Zones and have been for weeks. And last Monday, the small-cap Russell 2000 joined them. A Red Zone across all four major indexes is something we haven’t seen all at once since March of last year – weeks before the Liberation Day tariff announcement and subsequent crash. Before that, it was early 2022 – the start of a bear market that eventually cut the S&P 500 by 25%. The Short-Term Health Red Zone sweep alone is a reason to be cautious. But we’re also tracking something potentially even bigger. For the past 40 years, TradeSmith has tracked a bear market warning system built on the same Volatility Quotient (VQ) that powers our individual stock risk indicators. VQ measures when a stock breaks down beyond its normal volatility range. Apply that same logic to the dozens or hundreds of stocks that make up major market benchmarks, and we can figure out the kind of conditions that have historically led to bear markets. The resulting Bear Market Indicator has issued 11 warnings since 1987. Not one of those warnings failed to precede a meaningful market decline. Black Monday in 1987. The dot-com crash. The 2008 financial crisis. The COVID-19 crash. The Liberation Day selloff in April 2025. Warning 12 hasn’t fully triggered yet. But one condition for it has already been met. Last month, the Dow Jones Industrial Average entered a Long-Term Health Red Zone – our longer-timeframe trend indicator. This is one of the inputs the Bear Market indicator monitors. And it has now flashed. If you want to understand exactly how our Bear Market indicator works, what the historical record looks like, and what a Warning 12 trigger would mean for how you should position your portfolio, Keith Kaplan has laid it all out in full detail. The investors who came out of 2022 in the best shape weren’t the ones who called the bottom perfectly. They were the ones who had a system that told them when to reduce risk – and followed the plan. And it’s not the only warning our systems are sounding. Our Seasonality tool is flagging more weakness in the S&P 500 next month. In past energy shocks, May and September have been down months…To understand what this war might mean for the rest of 2026, we looked at the S&P 500’s monthly performance during every major energy shock of the last 50-plus years. The years we studied include:
The Arab oil embargo of 1973–74 The Iranian Revolution shock of 1979–80 The Gulf War in 1990 The OPEC production cuts of 1999–2000 The mid-2000s oil price surge of 2007–08 And Russia’s invasion of Ukraine in 2022 Think of it as a seasonality study… with a twist. Typically when using seasonality, we use a “straight line” of historical data through a window of time. This time we’re focusing only on periods of rising energy prices. No two oil shocks are exactly the same. But when we look at the typical seasonality patterns for the S&P 500 across each of these six periods, we see some interesting pattens. Take a look: 
The first seasonal pattern for this set of years is coming up on May 7. In eight out of the 10 years with major energy shocks in the past, the S&P 500 has been lower from May 7 to May 26 – for an average loss of 1.8%. And there’s an even more pronounced pattern in September. 
The S&P 500 fell an average of 3.8% in September. And the index finished September in the red seven of the 10 years we studied of the time. Looking through the lens of seasonality patterns during oil shocks, you’ll want to lean bearish during these bearish windows. One corner of the oil market is telling a different seasonal story…The broad market setup looks treacherous. But that doesn’t mean there aren’t pockets of opportunity. One of those pockets is showing up right now in Alliance Resource Partners (ARLP). ARLP is the second-largest coal producer in the eastern United States. It operates seven underground mining complexes across Illinois, Indiana, Kentucky, and Appalachia, selling the bulk of its output to electric utilities under long-term contracts. It also collects royalties on oil and gas mineral interests – a growing part of the business that adds income stability on top of the core coal operation. The setup here is straightforward: When energy prices rise, ARLP’s revenues rise with them. Its utility customers need coal to keep the lights on, regardless of what’s happening in the Middle East. And with natural gas prices elevated and Gulf supply disrupted, coal’s role as a power source has become more important. And right now, TradeSmith’s Seasonality tool is flagging a historically strong bullish window opening in just under a week. 
From April 13 to May 1, ARLP has been up every single year for the past 15 years – no matter what the oil market was doing. The average gain across those patterns is 7.8%. That’s a trend worth watching because it persisted over the last 15 years – it doesn’t depend on what’s happening in the Middle East. To building wealth beyond measure, 
Michael Salvatore
Editor, TradeSmith Daily |
