In keeping with my desire for simplicity wherever possible, the Headwinds Index is calculated as the price of crude oil divided by the financial sector ETF (XLF). For various reasons, I used the USO crude oil ETF instead of the crude oil front month futures.
The resulting ratio chart, which I have enhanced from the previous iteration presented in Headwinds Index: How Long Can Financials Outperform Energy? now includes a 100 day simple moving average for the USO:XLF ratio and a 50 day SMA for the SPX mini-graph at the top. [I have also inverted the ratio to better align with the headwinds metaphor.] Note that the 100 day SMA served as support for the Headwinds Index last week and the current level is at the 50 day SMA, which is a potential area of resistance. If this index breaks above 5.0, I would expect to see a rush to re-implement many of those long oil and short financials momentum trades.
Finally, note that an upturn in the Headwinds Index has preceded a turnaround in a rising SPX on a number of occasions. Keep an eye on this divergence going forward, as I do not expect to see a sustained rally in the S&P 500 until financials are able to outperform energy on a relative basis.