Crude oil lost over 6% this week: from a high above $113 a barrel on Monday (Apr. 11) to below $106 on Wednesday (Apr. 13). So let's focus the oil/stocks correlation so often discussed in the news.
On Tuesday (Apr. 12), crude's selloff coincided with a sharp drop in the DJIA. Said the news headlines:
- Wall St drops 1 pct on oil's fall (Apr. 12, Reuters)
- "Stocks bounced off their intraday lows, though they remained sharply lower after a selloff in crude oil..." (Apr. 12, Wall Street Journal)
So, falling oil prices are bad for stocks. OK -- but just last week, "fundamental" experts told us that rising oil was bad for stocks! Just look at these headlines:
- Dow falls 29 as crude oil tops $112 (April 8, MSN Money)
- Wall St falls further as oil climbs (April 8, Reuters)
- US stocks drop on oil's rise, budget battle (April 8, MarketWatch)
If falling and rising oil prices are bad for stocks, how can crude be an "indicator" at all?
Instead, aren't you better off by looking at a chart to see just how exactly oil and stocks correlate? Our subscribers saw this one in our February 25 Short Term Update:
As this chart shows, the argument linking rising oil as the cause for falling stocks has been demonstrably false over the prior 23 months. Since the first quarter of 2009, oil has tripled while stocks have doubled.
Chart analysis is at the heart of what we do at EWI. If you find this chart of oil vs. stocks eye-opening, you should see other charts our subscribers see regularly.