According to Main Street, rising crude oil prices are to U.S. equities what a long sharp nail is to a bicycle tire. Case in point, this popular news item from Saturday, July 5: “Stocks shadowed by Crude… Markets are now ridiculously correlated with crude… If the price of oil continues to be at or above current levels, the market is going to continue to go down.” (DJ MarketWatch)
Here’s the thing: on Monday, July 7, crude oil took a $3-plus tumble to its lowest level in one week -- yet this development did nothing to boost the spirits of stocks. That very day, the Dow Jones Industrial Average endured a triple digit sell-off into official bear market territory.
Listen and Learn: In the August 2006 Elliott Wave Theorist, E.W.I. President and Theorist editor Bob Prechter wrote: “There is no consistent correlation between stock and oil prices over time. That’s the markets job: to throw asnowball 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.”
(Drilling For Opportunity In Oil: In the June 6, 2008 Elliott Wave Theorist, Bob Prechter presents four, jaw-dropping snapshots of Crude Oil alongside invaluable insight of the market’s likely long-term trend changes. Get instant access today absolutely risk-free.)
Nothing sets the record straighter than the straight facts about oil prices verses the DJIA over the past three years:
· August 2005 to December 2005: Oil plunges 20% to a 10-month low -- AND -- the DJIA barely lifts its head from 10,735 to 10,950.
· December 2005 to July 2006: Oil soars from below $50 to nearly $80 p.b. -- AND -- the DJIA continues to climb 10,950 to 11,282.
· July 2006 to January 2007: Oil suffers a 36% sell-off to an 18-month low -- AND -- the DJIA rallies above the never-before-seen 12,000 mark.
· January 2007 to October 2007: Oil lifts off from under $60 to nearly $80 p.b. -- AND -- the DJIA also soars to an all-time record high of 14,279 on October 9, 2007.
· From October 2007 to June 2008: Oil’s record winning streak goes unabated -- AND – the DJIA remains locked in a steady decline.
I repeat: OIL prices (or any “outside” factor) are not behind the major ups and downs in stock prices. The internal force of mass social mood -- which unfolds as clear, calculable Elliott Wave patterns on a market’s price chart -- is.
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