When Oil Goes Down Stocks Will Go Up
Jul 9th, 2008 | By Charles Delvalle | Category: Oil Investment & Alternative EnergyIt may be a simple observation, but we think it may be spot on. Charles Delvalle says that the price of oil is depressing stocks. It’s likely well see a rally in stocks if oil prices come down…
Consider that since November, the Dow Jones has dropped 20 percent. Oil on the other hand, has doubled and nearly every day that oil hits a new record high, the stock market ends down on the day. On Monday, when oil prices fell $4 a barrel, the market rallied higher.
The reason oil is having such a nasty effect on the stock market is because as prices move higher, consumers have less money to spend on other things. That means company profits should drop and could lead to a slew of nasty things like layoffs and bankruptcies.
Another reason why the market tends to sell-off on record high oil prices is inflation. As oil prices move higher, inflation levels go up with them. Unless companies want smaller profit margins, they have to increase prices. Either way, it’s not a good recipe for success.
As long as the price of oil keeps moving higher, the market will have a hard time rallying significantly. Oil won’t rally forever. Once we start seeing some stability or a small correction in oil prices, expect the market to rally nicely.
Source: The Link Between Oil and Market
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Charles Delvalle is a self-taught market-timing professional and value analyst who uses a combination of technical indicators and fundamental research to achieve consistent gains on stocks, commodities and options.
Charles is also a staunch contrarian and takes pride in finding undervalued sectors and discovering great companies on the cheap. He questions government reports and the status quo. In addition to swing trading options, Charles is also Co-Editor of the monthly advisory service - INCOME.
