Waning oil-stock tie in focus

Traders are watching to see if stocks can break out of oil's grip Tuesday.

Other factors will also be at play. For one, the Treasury's announcement late Monday of new moves to limit inversions, or tax avoidance deals, could also sour the market, particularly health care, according to Michael O'Rourke, chief strategist at JonesTrading.

The rules could limit the ability of foreign companies from buying multiple U.S. companies in a short timeframe, as well as limit the ability of companies to push profits abroad for more favorable tax treatment.

Allergan plunged 20 percent in afterhours trading, after the new rules appear to threaten Pfizer's merger with Allergan, expected to be completed this year.

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Markets will also be focused on fresh services sector data, with both ISM nonmanufacturing survey at 10 a.m. EDT and the Markit Services PMI at 9:45 EDT. International trade is released at 8:30 a.m. ET, and the JOLTs - job openings and turnover data - is released at 10 a.m EDT.

Stocks stumbled Monday, as West Texas Intermediate crude futures lost nearly 3 percent and is now down nearly 15 percent from its March 22 high. WTI closed at $35.70 per barrel. Oil fell on concerns producers would not agree to freeze production but also amid fresh data showing a decline in U.S. refined product demand.

"The positioning in oil is bearish. The fundamentals are bearish," said O'Rourke.

There had been some wishful thinking that oil and equities were parting ways, but oil is a negative weight on equities at lower levels, as the focus shifts back to the survival of energy companies.

The S&P 500 fell 6 points to 2066, and the energy sector was off 0.5 percent. The worst performing sectors were materials and industrials, both down nearly 1 percent.

J.J. Kinahan, chief strategist at TD Ameritrade, said the correlation between oil and stocks did seem to be moving apart.

"It was 92 [percent] near the end of last month and today it was around 83," he said. Kinahan said traders were watching the $35 level but the correlation could make a strong return if oil moved to $32.

"I think this week to me is a time to make our game plan for the rest of the quarter. I think it's one of the reasons the volume was a bit light last week and maybe a bit light this week," Kinahan added. "The Fed minutes don't tell any great story but there is some risk there."

The minutes of the Fed's latest meeting will be released Wednesday, and will be important after Fed Chair Janet Yellen delivered a dovish speech that pushed back market expectations for rate hikes.

"I think what you saw today was people cleaning up risk and taking off things they thought performed pretty well since mid-February. They're thinking about what they're going to rotate into as they head into the rest of this quarter and year," said Kinahan.

He said energy and consumer staples had been attracting buyers. Healthcare, meanwhile, was a wild card because both Republican front-runner Donald Trump and Democrat Hilary Clinton have said they would go after drug prices.

Kinahan pointed to Monday's 7.8 percent jump in the Volatility Index, or VIX. The VIX is the market's fear gauge, based on puts and calls on the S&P 500, and it has been at a very low level recently.

Bonds were also moving higher, with the 10-year yielding moving inversely lower to 1.77 percent.

"If gold had moved higher too, I would have said this is not a good sign" for stocks, said Kinahan.

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