Day after day, the dwellers of Wall Street engage in their very own game of Musical Chairs. Here’s how it goes: When the broken record of fundamental economic wisdom stops playing, reality is left without a seat to sit in.
Take, for instance, the widely held notion that crude oil prices move opposite equities: a rise in energy is bearish for stocks, and vice-versa. On this, the following April 25 news items speak volumes:
“Oil Worries Weigh On US Stocks.” (The Street.com) ---- AND ----“Wall Street edged lower as investors enthusiasm for new deals was tempered by record oil prices.” (Forbes) ---- AND ----“Oil prices surge $3 a barrel, driving down US stocks. The oil space has become more and more a drag on market sentiment.” (Reuters)
There’s plenty more where those came from, suffice it to say: The link between stocks and crude is about as consistent as the relationship status of Hollywood’s youngest celebrities. And nothing makes this truth more apparent than the following chart from the August 2006 Elliott Wave Theorist.
Take your time looking this picture over because you won’t see anything like it in the mainstream media. That’s the upshot of selective reporting. Now, however, its message can persist: “There is no consistent correlation between stock and oil prices over time. That’s the markets job: to throw a snowball into the air to catch your attention so that when you look up, it can smack you in the jaw with another one. Don’t Fall For It.”
In the years since Elliott Wave International founder Robert Prechter presented the above close-up, the relationship between stocks and oil has remained uneven. To wit:
-- From August 2006 to January 2007: crude oil plunged 36% as the Dow Jones Industrial Average rallied above the 12,000.
-- From January 2007 to October 2007: crude oil surged from below $60 per barrel to nearly $80 per barrel; the DJIA also soared to an all-time record high of 14,279.
-- From October 2007 to March 2008: crude oil continued rising; the DJIA plunged to a 19-month low on March 10. Since then, both oil and stocks have been rising in sync.
It doesn’t get any more inconsistent than that.