The Oil Disconnect From The Market
- Posted by TheArmoTrader
- on September 19th, 2012
Historically, we know that oil ($CL_F) is positively correlated with the market ($SPX). If we are in a risk-on scenario, then oil is bid up with the market and if oil sells off, you expect oil to go down with it. This has caused some problems to the market every-time we have gotten above that $100 level for the past couple of years. However, something different has been happening for the past few months. Oil is disconnecting from the market.
I saw two interesting tweets over the past few days that relates to this topic.
I forget which we’re rooting for this week – is crude plummeting great for the consumer or a bad economic sign? $$
— Downtown Josh Brown (@ReformedBroker) September 19, 2012
It’s getting harder to discern useful recession signals in the US from its own oil demand, which topped out starting in 2004/2005.
— Gregor Macdonald (@GregorMacdonald) September 18, 2012
So, are we rooting for the decline in crude (thus hinting at a possible structural change in the economy away from oil), or is this a bad sign for the economy, that there has been such a major disconnect in crude prices (and thus a tell for the market that this is a cyclical slowdown)?
$SPX (dotted) vs $CL_F (solid black)
As you see, over the past 3 years, the prices of the market and oil closely follow one another, however, over the past few months, the price of oil has lagged the market pretty noticeably.
The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.blog comments powered by Disqus
Jerry Khachoyan is currently an undergraduate student at UCLA pursuing a degree in Political Science. He started trading in September of 2008. He concentrates on using technical analysis and reading the tape to enter the best risk/reward trades. The stock market to him is one of the greatest inventions by man.
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