Brent Crude Oil and DOW Relationship

[Chocolate]

I was spread betting Brent Crude Oil and the DOW using finspreads, 50p a cent and there seemed to be an uncanny relationship.

You would think that a strong DOW implies a strong US economy and since the US is a major consumer of oil, this should mean that oil prices should be high when the DOW is high. But in fact, almost the opposite seemed to occur. The strong US open today and yesterday was accompanied by a fall in oil price, with the price recovering later in the day. But of course, this is more likely to because of the time of day than the behaviur of the DOW, and this is what I thought myself.

But there was a wonderful consolidation pattern on the DOW today during which the oil price was doing reasonably well. The moment the consolidation was broken to the upside, the oil price tumbled by almost 40 cents with a breather while the dow retraced. Is this coincidence or is there a good reason for this. As far as I can see, there should be no fundamental reason why this should be the case.

Perhaps it is because the same people, the institutions who trade the DOW and oil and the institution traders want to have money available during DOW rallies, so they sell oil, buying it back at times of lower volatility. This seems fantastical though. Coincidence? Comments much appreciated.

 

[Chocolate]

OK, forget that idea. Both dropped yesterday.

 

[CHARTY]

Mansur, I am keen follower of the markets in general, on the basis that what happens to commodities/oil has a direct impact on equities and can teach us a lot. Here is my personal taking of the relationship between oil and the Dow. I do not mean to leacture, more to reopen this thread for discussion. Oil is a cost to companies. If oil goes up, profits go down (apart from profits of Oil companies!!). Oil is also a major/leading indicator of inflation. Again, if inflation goes up, this is bad for stocks, since interest rates go up as well, hence people have got to pay more interest on their loans, thus seing their profits lowering. Since oil is a prime commodity, I would genrally say OIL leads stocks. If oil goes up today, this will not affect companies may be until tomorrow or the day after, until when they have to purchase oil, anyway. A stupid example, but should give an idea.
Conclusion. Oil is falling, although very gently. This is good for stocks in the LONG term. Oil is not coming down fast, though.
I personally sign for more talks on oil on this board, because we are equity traders AND oil is relevant to us!

 

[shelman]

This is an interesting subject, if one knew which way the price of oil would go, MEDIUM term investment strategies could be established, not much good for the shorter term trader but ideal for someone who can afford to tuck away sizeable sums knowing they will inevitably increase their wealth....no it can't be true, i'm just a silly old cynic.... nobody knows that do they?
I'll just stick to following the cycles even though they have dumbfounded me lately.
Steve

I should add; i've never had to stop loss an oil stock ( i only trade two) but on occasion i have had to be patient.

 

[twiggytwo]

Oil & the DOW

Mansur, I am keen follower of the markets in general, on the basis that what happens to commodities/oil has a direct impact on equities and can teach us a lot. Here is my personal taking of the relationship between oil and the Dow. I do not mean to leacture, more to reopen this thread for discussion. Oil is a cost to companies. If oil goes up, profits go down (apart from profits of Oil companies!!). Oil is also a major/leading indicator of inflation. Again, if inflation goes up, this is bad for stocks, since interest rates go up as well, hence people have got to pay more interest on their loans, thus seing their profits lowering. Since oil is a prime commodity, I would genrally say OIL leads stocks. If oil goes up today, this will not affect companies may be until tomorrow or the day after, until when they have to purchase oil, anyway. A stupid example, but should give an idea.
Conclusion. Oil is falling, although very gently. This is good for stocks in the LONG term. Oil is not coming down fast, though.
I personally sign for more talks on oil on this board, because we are equity traders AND oil is relevant to us!

Hi Charty,
you are looking in the correct direction, if you can , take a full day from 7.00 am to 9.30 pm UK time and just watch the TV with CMBC on ( if you have a live feed for the Dow set this up on your screen to see the Dow intraday from it's open at 2.30 UK time to 9.00pm UK time
watch the price action on the CMBC all day (do not trade ) just watch the price action from 7.00am for the Dow futures and from 2.30 pm for the Dow live price at the same time (7.00am ) watch the price action for the NYMEX Oil see the V or ^ and the change in price of the futures and the cash ( live price ) .
If you use the sound on the TV ( Bob Pisani ) on the trading floor CMBC TV will explain the market moves he is the BEST forget the rest and all the noise and just watch the pice action.
If you have the live feed and the chart for the Dow look at this also and see the price changes
If you can do this when the Dow is showing a day of good movement you will see the answer
to your very good post
My Best Regards

 

[Racer]

I think oil is just a reason that is searched for if the market goes up or down on a particular day and the media can't find anything else to justify the rise/fall.
If it doesn't fit the pattern it is ignored and no comment is made and they look for something else!
Oil/energy makes up part of the market anyway.
Note UK has extremely high price of petrol/diesel not only because of the price of oil but because of the exhorbitant duty on it that is imposed by the government, so if oil goes up you would think the FTSE should go down but oils make up a big chunk of the FTSE 100, so often it doesn't go down!

 

[Minder]

Oil to challenge recent highs ?

Crude oil futures open higher as Hurricane Emily roars toward oilfields

Pemex halts 480,000 bpd/oil output in Gulf of Mexico as Hurricane Emily strikes

 

[daps]

Hi...,

Thanks for the information people. However, im unable to put both products onto one chart.? Can anyone suggest which to use. Or any website I can get a list of the closing prices for Brent and Light Crude.

Regards

Daps

 

[Spunkoid]

Oil at the moment is trading at a high. So any decent movement does have a tendency to effect the DOW at the moment. Normally it wouldn't be so strongly linked except it is so high at the moment. Yeah Oil went up a dollar today and the DOW had a nice big down move. I wouldn't say they were always linked even during this period but certainly when Oil is bullish and if you're short on DOW then thats comforting and visa versa. What Oil does is almost have an exaggerating effect on the market throughout the trading. In other words if its due to go down, if after an initial rise, then how Oil is performing can largely exaggerate a main leg of the DOWs movement.