intermarket realtion between oil price and equity market

2009-01-16, Friday

Once upon a time, oil price is inversely related to US equity/stock market price. when oil price go up, stock trader will be scared of inflation and sell off stock. when oil price go down, stock trader will take comfort of low inflation and rally the stock.

This relation maintain until last July when the oil price peak around $147. You can see this happened not long ago, but since people in financial market has short term memory, it seems ages ago. hence once upon a time in the beginning...

But this relation is completely out of whack now. when stock price go down, trader fretted about weak oil demand, so they drive down oil price and vice versa. Now two market are positively related. It made sense, too.

OK, the reason why the shift might not be obvious. (Master M might be able to come up with a consipiracy theory for this. :) This relation will be maintained until it is broken. That is some outside force break it...

What we can learn from this is you can look for stock market for a clue where the oil price is headed. And the picture is not good. (to be continued)