Related Topics
Stocks , Energy
Share This Page         

Should Stock Investors Prepare for an Oil "Shock"?

Look at this test of the 52-week correlation of oil and stocks

by Bob Stokes
Updated: June 18, 2019

Are falling oil prices bullish or bearish for stocks?

You might think the answer to that question would be clear by now -- a settled matter -- given the countless news stories, editorials and opinions that have linked the two over the years.

But someone reviewing the historical headlines when oil and stocks were in the news might easily get confused.

For instance, on Aug. 12, 2008, USA Today ran this headline:

It's hard to lose betting on stocks as oil falls

A portfolio manager quoted in the article provided the reasoning that supports the headline: "If oil prices are falling, a key cost for both consumers and businesses is also falling. It acts as a benefit for the stock market overall."

Seems to make perfect sense.

But then the earnest researcher comes across this Dec. 12, 2015 Associated Press headline:

A rout in crude oil prices hammers stock market

The article said that a slump in oil prices is a sign of global economic weakness, so stock investors hit the sell button.

This reasoning makes sense too -- but, obviously, the message of the two headlines conflict. One says falling oil prices are good for stocks, the other says falling oil prices are bad for stocks.

So, returning to the question of whether falling oil prices are bullish or bearish for stocks, the answer is neither.

Robert Prechter's 2017 book, The Socionomic Theory of Finance showed this chart and said:

img

One can reverse the causality asserted in any exogenous-cause claim and sound perfectly logical either way...

As is typically the case with such dual lines of reasoning, neither causal formulation explains the data. The chart shows that for the past 21 years there has been no consistent relationship between the trends of oil prices and stock prices on a 52-week basis... Sometimes stock and oil prices go in the same direction, and sometimes they go in opposite directions...

In the end, we can determine no consistent causal relationship whatsoever between the two price series.

EWI's research reveals that the stock market's price action follows the Elliott wave model and is not governed by any exogenous cause, including oil.

Even so, a June 13 financial news article said (CNBC):

Dow futures rise as oil prices surge on tanker incident in the Gulf of Oman

But the Elliott wave model anticipated the Dow's rise before the tanker incident.

On June 5, our U.S. Short Term Update said:

[The current Minor wave] is still-progressing. This means that the Dow Industrials and S&P 500 index will rally.

As you may know, stocks were up for the second straight week as of Friday, June 14.

Now is the time to find out how long this rally is anticipated to last. Look below to learn about EWI's risk-free trial.

Will You Believe Your Own Eyes?

Renowned Elliott wave expert Hamilton Bolton once said of Elliott wave analysis:

"The hardest thing is to believe what you see."

In other words, take the chart pattern at face value -- unless and until that message clearly changes.

The just-published June Elliott Wave Theorist mentioned that Hamilton quote -- and there is a big reason why.

Hint: It speaks to a stock market forecast that stretches into the year 2021!

See the forecast for yourself -- without any obligation for 30 days. Get details below …


Elliott Wave International’s Financial Forecast Service

All month long, FFS shows you the patterns in U.S. stock indexes, bonds, gold, silver, the U.S. dollar, as well as market psychology and cultural trends. We show you where the trend is now, and when prices should turn -- specifically, we show the pattern at multiple degrees of trend, with precise risk/reward calculations. If you have fewer surprises, you can be better prepared.

Here’s how it works:

 

1

Subscribe now and read the current issues within FFS.


 

2

Fine-tune your portfolio plan.


 

3

Relax. Watch the markets with your targets in mind.




Your Financial Forecast Service Team Helps Put YOU in Control of the Market’s Trends and Turns


Your Financial Forecast Service guides -- three of the best-known market analysts in the world:

  1. 1. Robert Prechter, Author of 16 market-related books, New York Times Best-Selling Author and Editor of Elliott Wave Theorist
  2. 2. Steven Hochberg, Editor of the Short Term Update and Co-editor of The Elliott Wave Financial Forecast
  3. 3. Peter Kendall, Author of The Mania Chronicles and Co-editor of The Elliott Wave Financial Forecast

As featured in:



Here's what you get with the Financial Forecast Service


Every Month

At the end of each month, you get a 30-60 day look ahead at the markets. Elliott Wave Financial Forecast lays out expected trends and turns in stocks, gold, USD and bonds.

Three Days Per Week

At market close every Monday, Wednesday, and Friday, you get the Short Term Update, alerting you to what’s changed and what’s upcoming in the next several days.

Latest Research

Every month, Robert Prechter sends you his latest research about waves of social mood in the markets in the Elliott Wave Theorist, so you always know the full picture.


45 Days of the Financial Forecast Service
+ The Socionomic Theory of Finance

and save 33%

Get the digital version of this ground-breaking book FREE
with 45 days of our flagship Financial Forecast Service.

Limited-Time Price: $148 $99