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Is A -0.5 Correlation Of Oil To Stocks Indicative Of A Market Top?

Tyler Durden's picture




 

Reuters presents an interesting chart, which shows the historical correlation between oil (both Brent and Crude) and equities. After we had seen a positive correlation, either weak or strong, between the commodity and the risk asset for two and a half years, the correlation has finally flipped and gone negative. And while many debate whether or not the WTI is relevant at all any more with all the factors that have caused a record spread between it and Brent, one thing is obvious: the last time WTI to Stocks hit a correlation of -0.5 is just after the market peaked in late 2007, early 2008, as the market had started its decline which culminated with the global sell off of everything not nailed down, bringing the S&P to 666. The correlation between the two assets is again -0.5. If Brent confirms the WTI correlation, it may be time to run.

 

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Tue, 03/01/2011 - 14:05 | 1007783 hugovanderbubble
hugovanderbubble's picture

I think no,

This movement in oil is just pure speculation driven cos oil fields politik-conflicts in MENA area.

 

China;Brazil Latam Canada and Germany mantains a good demand path in oil, and remember Venezuela will adapt a new currency linked to oil price to fight the Occidental GoldSilver Currency System.

 

China will drive us to SPX 1.500 in just months,

We need more inflation¡¡¡¡:)

Tue, 03/01/2011 - 15:46 | 1008274 the mad hatter
the mad hatter's picture

Points to consider

  • Oil trading higher in 2008 was driven by speculation about overwhelming demand from EM
  • This time, it's geopolitical which is an entirely different beast. Supplies can be cut dramatically be cut in a day or so e.g. Libyan exports
  • WTI/Brent divergence is sigifying that fundamentals still matter in oil markets. If we had unbridled speculation WTI would be out of control right now as well.
  • Ben Bernanke is more desperate than ever.

I'm holding onto my CL longs for now. We're also seeing a paradigm shift of what a "safe haven" asset is. I noticed it a couple months ago when stocks sold off but precious metals didn't.

Tue, 03/01/2011 - 14:07 | 1007786 Jaw Knee Cash
Jaw Knee Cash's picture

There has to be a market top soon for us to get QE Quadrillion.

Tue, 03/01/2011 - 14:06 | 1007791 disabledvet
disabledvet's picture

You forgot to factor in "the sudden appearance of Mr. Incredible" aka "uber munschen in spandex."  What could possibly go wrong?  The worst part?  I might be lauging when i write this...but i am not joking.  This is my serious side.

Tue, 03/01/2011 - 14:09 | 1007799 Cognitive Dissonance
Cognitive Dissonance's picture

I can't wait until all those "buy buy buy" algos switch to "sell sell sell".

While the devastation that follows will be real ugly, what I can't wait to see is those same fools on TV telling the world once again "Who could have predicted this?".

The public will not swallow the same cold porridge the second time around.

Tue, 03/01/2011 - 14:22 | 1007890 nathandegraaf
nathandegraaf's picture

Sorry to disagree but the public are the same people who still ask, "But won't the government do something about it?"  They allowed it the second time around in the thirties.  They will allow it again so long as they are provided with a specific scapegoat, which will most likely be Bernanke or Obama.  American optimism/naivete/add is not going away soon. 

Tue, 03/01/2011 - 15:09 | 1008128 Cognitive Dissonance
Cognitive Dissonance's picture

You are missing the nuance. There will always be the brain dead. But not swallowing it and doing something about it are two different things. All I said was that they wouldn't swallow it.

You inferred otherwise when you said "They will allow it again so long as they are provided with a specific scapegoat...."

Allowing it is an entirely different matter. Besides, there is no allowing or not allowing. The powers that be do what they want to do. The people decide if will they swallow it or not. If not, will they do something about it.

Most people up to now swallow hard and look away. For it to happen again so quickly after late 2008/early 2009 will rub a lot of people the wrong way. I say they won't swallow it. Now, what will they do anything about it after not swallowing? Or will they become like so many other people in the world who recognize they are being screwed and do nothing for decades until the erupt. Re: Egypt, Libya etc etc.

Tue, 03/01/2011 - 15:23 | 1008179 blunderdog
blunderdog's picture

Personally, I don't think the majority of the people "swallow it" TODAY.

There's a relatively small percentage of the population who believes in the great recovery.  These are college-educated affluent upper middle-class folks. The kind of people who read the NYT because it's the best paper in the country.

Take a look at what percentage of the population you're seeing represented, and spend a few days at a local dive-bar with the out-of-work construction guys, the minimum-wage service industry employees, and the real estate brokers.

If virtually all your time is with a homogeneous cross-section of society, it's easy to get a deceptive picture of "what everyone thinks."  Lots of the talking heads on the teevee shows probably really believe their own bullshit, too.

Tue, 03/01/2011 - 15:31 | 1008209 Vampyroteuthis ...
Vampyroteuthis infernalis's picture

blunder, you hit it on the head. J6P doesn't buy it, but his boss does and that is all that matters. By the time the boss is unemployed the elites will have consolidated their ill-gotten earnings. Mr and Mrs Yuppie are delusional to the core while working stiffs have a good idea what is going on.

Tue, 03/01/2011 - 15:50 | 1008290 Cognitive Dissonance
Cognitive Dissonance's picture

"Swallow" in no way implies they believe or accept it.

Your boss told you no bonus this year and you only get a 1% raise. If you don't want to quit your job what are you going to do?

You swallow it and keep on working. Or you don't swallow it, but you keep working. You already decided to keep the job.

I already set aside the brain dead who believe what they are told. Read the thread. The first time people were upset (2008/2009) but swallowed it and moved on just like most would do after being told about the lousy pay raise. The second time they will not swallow it. Now, will they revolt the second time?

I'm breaking the actions down to their component parts. We make the mistake of making sweeping statements here on ZH. It's much more nuanced that most people are recognizing.

Tue, 03/01/2011 - 17:12 | 1008826 blunderdog
blunderdog's picture

Ah, just confusion on terms, then.  "Swallow it" I took to mean "fall for it." 

People are going to keep working and accepting this stuff because they don't have many options.  You have to eat, pay rent, put gas in the car, whatever.  The peasants in Russia in the '40s-'50s didn't have a choice, either.

Tue, 03/01/2011 - 14:08 | 1007800 cougar_w
cougar_w's picture

Hmm. Anyone have an idea what the mechanism is behind this? Correlations are interesting but are not causation as such.

Maybe when oil prices get too high another part of the model kicks in and it no longer matters that energy stocks are doing well if everyone else is headed into the shitter ...

Tue, 03/01/2011 - 14:32 | 1007938 SheepDog-One
SheepDog-One's picture

When everything is manipulated thru monetization or media puppet master 'rumors', wheres the correlation to anything?

Tue, 03/01/2011 - 14:33 | 1007945 cougar_w
cougar_w's picture

There is still a ghost in this machine.

Tue, 03/01/2011 - 15:12 | 1008140 markmotive
markmotive's picture

There are times when oil prices go up because economic activity is growing (thus demand is growing) and there are times when oil prices go up because supply is shrinking.

The first scenario is good for stocks (thus a positive correlation) and the second scenario is bad for stocks (thus a negative correlation).

Tue, 03/01/2011 - 18:05 | 1009104 ThreeTrees
ThreeTrees's picture

Momentum?  My guess is that there's a lag between a spike in oil price before it begins to impact production/transportation outlays.  Gotta let the economy work off the inputs that are already in the pipe, so-to-speak.

Tue, 03/01/2011 - 14:08 | 1007807 the rookie cynic
the rookie cynic's picture

High oil prices compress margins on all equities. Roubini has pointed out that "Oil price shocks have led to US recessions in 1974-75, 1980, 1990, 2001 and 2008-2009. 3 of these were caused by Mid East political shocks." Correlation ain't always causation, but could be in this case. Oil is the master resource after all. 

Tue, 03/01/2011 - 14:19 | 1007883 cougar_w
cougar_w's picture

That was my thinking, but I didn't have the data. Roubini probably has it right on this one.

The nature of the Arab uprising is key. If these go in a healthy direction it could stabilize things in the long run. If not then enter the shitstorm.

Tue, 03/01/2011 - 14:29 | 1007924 New_Meat
New_Meat's picture

not-->shitstorm

Tue, 03/01/2011 - 14:36 | 1007971 buzzsaw99
buzzsaw99's picture

agreud

Tue, 03/01/2011 - 14:10 | 1007812 Cdad
Cdad's picture

Oh come now.  We have been assured by the criminal syndicate known as Wall Street that only $150 oil will negatively impact the US consumer...of course, while they file the least informed of the sheeple into the S&P...but never mind about that.

And the fact that said criminal syndicate is, itself, piling franticly into metals is also to be ignored.

Tue, 03/01/2011 - 14:10 | 1007813 10kby2k
10kby2k's picture

Our entire system needs a 'reset'.....2008 did not result in any structural change. Its going to take more and deeper pain to get our policies changed.

Tue, 03/01/2011 - 14:17 | 1007855 geminiRX
geminiRX's picture

Excuse me, but where the hell does the money run to this time? I have serious doubts it will flow back into the greenback and government debt (because everyone is running from that too and the yields blow chunks). The only plausibility is that money flows to PM's and oil as the flight to safety. Without dollar confidence - there is likely no crash. 

http://www.youtube.com/watch?v=AjPau5QYtYs

Tue, 03/01/2011 - 14:25 | 1007910 nathandegraaf
nathandegraaf's picture

When there is no safe place to flee you either go home or you fight.  So either the money goes to war or...

Dang. 

Tue, 03/01/2011 - 14:19 | 1007876 Flakmeister
Flakmeister's picture

Check the record.... I have been posting for a while. Be long until Brent is ~120, then start fading...

 So it looks like the tipping point was about 115. Sue me.

Tue, 03/01/2011 - 14:39 | 1007988 cougar_w
cougar_w's picture

Ah ha, so it's all your fault!  /jk

Tue, 03/01/2011 - 14:58 | 1008083 Flakmeister
Flakmeister's picture

 Yep... I am one of those filthy speculators.. I've hoarded about 10 55 gallon drums and selling forward to screw the sheeple. Once the pool out back thaws, I'd figure I'd increase the leverage, if you catch my drift.

Tue, 03/01/2011 - 14:21 | 1007884 TradingJoe
TradingJoe's picture

Who says history does not repeat itself? Look at 2008-2009 and you know what's coming! Oil WILL go to $150+ just like in 2008 only to fall off a cliff again, just like in late 2008, early 2009. As stocks "correct" oil will continue higher until it's time for QE3! This is the only "difference" between now and 08-09! Add Saudis and all that other crap to it and oil WILL be at said levels within 2-3 months tops!

Before that though, a nice little pull back(to get in a little cheaper) is in order, nevertheless, I would start buying NOW! Weather you buy futures or ETFs or energy companies outright, does not matter but I would urge everyone SANE to get in!

Tue, 03/01/2011 - 15:14 | 1008109 depression
depression's picture

Market patterns rhyme but rarely replicate exactly.

I doubt Brent will even stall at $150 on it's way straight to $200.

What will be different this time (vs. 2008): PM's will sky as core confidence is lost in the USD sending it into a vertical freefall to the mid-40's. As chaos spreads across the globe and key price levels break, events will speed up crushing all confidence into dust. They will be carrying the Bernank out feet first !

Brace for impact, this Quadrillion+ of derivative positions is going to unwind in a hurry. As they say down here in Hurricane Alley: "rush preparations to protect life and property to completion."

Tue, 03/01/2011 - 20:09 | 1009495 DosZap
DosZap's picture

Joe,

Any ideas which is best? ETF's, or companies.

Need some suggestions on where to get in, and diversify, have bought all the PM's I want, need to spread it out.

Any help appreciated.

Thanks

Tue, 03/01/2011 - 20:39 | 1009575 Flakmeister
Flakmeister's picture

In a nut shell:

1) Railroads, spread it around own a chunk of the whole network

2) MLPs in the energy infrastructure

3) Potash, fertilizer, NA deposits e.g. POT, TNH

4) Mineral deposits and producers in NA,  e.g. SWC, CCJ

5) Convertible preferreds in the Energy sector, CHKPRD, EPPRC etc...

6) Unique energy cos. like USU

7) Cashflows from oil & gas: eg: PBT, HGT, SBR

Anyway you get the idea....

Tue, 03/01/2011 - 14:22 | 1007888 dick cheneys ghost
dick cheneys ghost's picture

Is Libya all about OIL? is the CIA behind this?

 

http://nakedempire.wordpress.com/

Tue, 03/01/2011 - 14:31 | 1007935 Atomizer
Tue, 03/01/2011 - 19:53 | 1009449 mtguy
mtguy's picture

No, some on this site would say it has nothing to do with oil but rather it is Isreal that is the real reason...blah blah blah

Can someone explain the hatred for Jewish people on this site? Just b/c Blankysfine is Jewish and a crook doesn't mean they all are.

Wed, 03/02/2011 - 11:31 | 1011209 A Proud Canadian
A Proud Canadian's picture

Any Islamist gp who is in any way anti-US or West would be using this chaos to target vulnerable oil supply lines in the ME.  It's a "no-brainer" for the potential turbulence it would cause in Western economies and at very little personal risk to them, compared to blowing yourself up in an airliner.   The fact that we haven't heard very much about any activity makes one really question whether "they" are really the organized threat that they are made out to be.

Tue, 03/01/2011 - 14:23 | 1007891 99er
99er's picture

Crude

Time for a correction?

http://www.zerohedge.com/forum/99er-charts-0

Tue, 03/01/2011 - 14:24 | 1007894 geminiRX
geminiRX's picture

On a lighter note, I have been having problems accessing 24hgold.com for quotes...

Tue, 03/01/2011 - 20:12 | 1009500 DosZap
DosZap's picture

Their servers must be from the 90's.

I always have a LONG wait grtting in there, and KWN.

Tue, 03/01/2011 - 14:29 | 1007928 CrashisOptimistic
CrashisOptimistic's picture

Open your eyes, sports fans.  The US and UK both are making military noises, NOT after the Libya issues arose, but only after yesterday's indication that KSA can't fill in for Libya shut in.

IT'S ONLY 1 MBPD AND WE'RE GOING MILITARY.

We don't have even 1 mbpd of slack in the system.  This sucker is going down.  All of it.

Tue, 03/01/2011 - 14:37 | 1007982 cougar_w
cougar_w's picture

Right you are. The whole "SA is the swing producer" might have been true 10 years ago, but no more. Somewhere in the last few years Gwar started down, and we're about to find that out for a fact. Nothing will remain the same once that horse leaves the barn. Nothing.

Tue, 03/01/2011 - 15:12 | 1008144 depression
depression's picture

FYI: the US military is already mobilizing in a serious way right now.

Tue, 03/01/2011 - 14:32 | 1007939 nathandegraaf
nathandegraaf's picture

Okay, maybe I'm not the brightest investor but the way I understand it is that the banks use the shorts to keep down the price of silver, they get exposed and then... hope that ridiculous oil prices can keep the price low for them?

And when that doesn't work?

Tue, 03/01/2011 - 14:54 | 1008060 Printfaster
Printfaster's picture

WTI is not an indicator of anything.  It is totally isolated and prices there are a reflection of oil prices in Oklahoma and nothing else.

An example might be the price of eggs in an isolated valley in Oregon, with only a dirt logging road out.  They may have a lot of eggs, but there is no way to sell the surplus, so the price in the valley goes down to help move the eggs.

WTI is the tool of the NYMEX manipulators.  They can set the WTI price to almost anything.  The real price is Brent, and it will never go down from here.  Welcome to the new normal.  Worldwide demand will only decrease under force majeur.  Prices are going up for all energy and the world will adapt.

By the way the Saudi crude is useless.  Where things fall apart is that Libyan is almost ready for the diesel tank.  Saudi needs all kinds of refining to make it usable.  That capacity is not to be found.

 

Tue, 03/01/2011 - 15:01 | 1008099 nathandegraaf
nathandegraaf's picture

I know it won't work.  But what else can they do to keep silver down?  People are taking it in record numbers.  The banksters have to keep it low or more fraud be revealed. What could there next trick be?  Or do they just accept $92 silver and give up?   

Tue, 03/01/2011 - 16:13 | 1008434 CrashisOptimistic
CrashisOptimistic's picture

Adapt?  The world will adapt?

To what?  Food that doesn't arrive on grocery store shelves because the tractors that make it grow had no fuel?

Worlds do adapt to no fuel/food, and they do it in a matter of a few months.  It's called population reduction.

Tue, 03/01/2011 - 16:16 | 1008460 Flakmeister
Flakmeister's picture

Just waiting for the POTUS to deliver his "Ol Yeller" speech...

Tue, 03/01/2011 - 22:48 | 1009985 Matt
Matt's picture

So BNO > USO ?

Wed, 03/02/2011 - 02:49 | 1010418 JacktheTab
JacktheTab's picture

Long BNO.  

I'm wondering why all the Bakken plays got hammered so hard today. HES, NBR, CRR, etc.  Seems counterintuitive.   Canadian tar sands were up, so why not the American co's?

Tue, 03/01/2011 - 15:03 | 1008086 web bot
web bot's picture

I use to play master level chess in my younger days. I could always smell blood when I was about to skip the end game and go for the jugular.

I'm now smelling blood... lots of it.

I'm just praying for a dip in silver for one more reload.

Tue, 03/01/2011 - 15:40 | 1008236 DarkMath
DarkMath's picture

"If Brent confirms the WTI correlation, it may be time to run."

No it's not. The Fed has a POMO app for that.

No need to worry this time. Buy the f'ing dip everybody.

Tyler,

Stop thinking rationally. All historical charts are going out the window. The only thing you can do is consult your local high priest vatican assassin warlock. The market is on a Drug called Charlie Sheen. Charlie Sheen is a helluva drug.

 

 

Tue, 03/01/2011 - 15:58 | 1008343 max2205
max2205's picture
Gas thieves drilling holes into tanks of parked vehicles

Posted:

Mar 01, 2011 11:27 AM EST

Updated:

Mar 01, 2011 2:28 PM EST

Thieves are bypassing the gas cap and are drilling into the gas tank of cars. (Source: Josh Tolbert)
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By Jeff Rivenbark - email

FORT MILL, SC (WBTV) - Police are looking for thieves who are stealing gasoline by drilling holes into gas tanks of parked vehicles.

The York County Sheriff's Office says there have been five incidents reported in the Baxter Village and Bailiwyck areas of Fort Mill.

The thefts are taking place at night. Some of the victims did not realize that someone had drilled into their gas tanks until the vehicle was at a repair shop. 

The incidents have occurred on Camber Woods Drive, Jones Wade Court, Stafford Run Drive, Lower Assembly Drive, and Glenn Allen Way.

More News (story continues below):

Peter Dressel told police between 4 p.m. on Jan. 21 and 10 a.m. on Jan. 22, someone went underneath his gray 2006 Ford F-150 and drilled a hole in the tank. The estimated damage to his truck was about $1,400. The thief stole a half tank of gas valued between $42-$48.

Between Jan. 21 and Jan. 23, someone did the same thing to Ron Pulis' 2003 Dodge Ram 2500 truck.  Pulis said it cost him $950 to repair the truck.

On Feb. 13, Kevin Knape reported that someone punched a hole into the tank of his 2005 Ford F-150. 

Kathy Tuttle called police on Feb. 14 and reported that as she was filling up her truck at the gas station, she noticed gas was running out from under the vehicle. She took the truck to a repair shop and they advised that it appeared someone drilled a hole in the tank.

Most of the vehicles targeted have been pickup trucks, but James Walters' 2010 gray Honda Civic was also targeted.

Walters said someone drilled a small hole in the gas tank of his car between Feb. 18 and Feb. 20.  He said it would cost about $1,000 to repair the tank. Walters had the vehicle towed to the dealership to be repaired. 

The sheriff's office says drilling into a tank filled with gasoline is dangerous and could result in a fire or explosion. If you see anyone acting suspicious around vehicle, you should note the description of the person as well as the license tag of the vehicle they are driving.

Tue, 03/01/2011 - 16:20 | 1008490 Crispy
Crispy's picture

3.5 years and two events does not a correlation make.

Tue, 03/01/2011 - 18:07 | 1009112 HedgeFundLIVE
HedgeFundLIVE's picture

i'm looking at a short term high of 120 in crude.  then correction back to 90: http://www.hedgefundlive.com/blog/middle-east-unrests-effect-on-crude-oil-short-terms-highs-of-120-w-correction-to-90

Tue, 03/01/2011 - 18:33 | 1009193 kurt_cagle
kurt_cagle's picture

Personally I think this is precisely the kind of razor-tooth oscillatory patterns that you would expect with resource limitations (aka Peak Oil). Riots started because food (especially wheat) had become too expensive - this in turn was driven by the credit collapse (we've had similar bad years food-wise before, but they didn't cause the rolling revolutions, therefore, this time there are other factors).  Supply channels are threatened, and there is growing scepticism that Saudi can step into the breach (and growing believe that it's next).

Oil doesn't need to hit $150 a barrel for the US economy to roll over again - the US economy is already rolling over again, if signals in everything from housing to unemployment to retail sales are any indication. Oil need only go to $125-$130 a barrel for us to get the effects of 2007/$146. Of course, if Saudi DOES fail to supply the necessary surplus (which wouldn't surprise many people) or worse if Saudi falls to revolutionary fever, $180-$200 a barrel may very well result, which would more likely not double but triple gasoline prices, as supply chains would effectively shut down. Then oil will drop, but it'll drop to a low of $50-55, not $37 as the last time. Rinse and repeat in 2015.

Tue, 03/01/2011 - 18:44 | 1009230 Flakmeister
Flakmeister's picture

Well stated... I have called it the saw-tooth economy. From an investment perspective, better to the buy the cash flow from an oil field and just sit back and accumalate on the dips... The "magic number" appears to be ~$120 for Brent, the economy slowly chokes on itself until it lurches back it to life. I hope the CPR unit still has some charge left....

Tue, 03/01/2011 - 20:31 | 1009557 Buck Johnson
Buck Johnson's picture

You are correct, it is exactly that. Also I think that oil is going up to 200 a barrel before the summer gets here.

Tue, 03/01/2011 - 19:13 | 1009308 John Wilmot
John Wilmot's picture

Can someone explain why USO is so strongly outperforming the other oil ETFs?

USO was up 3% today, PXE was down 1.6%...I was always under the impression that USO was about the worst vehicle for going long oil, has something changed?

Wed, 03/02/2011 - 03:57 | 1010484 Grand Supercycle
Grand Supercycle's picture

I'm sticking to my call on Feb 22, that DOW topped @ 12,391 on Feb 18 2011 and thus signals the end of the rally.

http://stockmarket618.wordpress.com

Wed, 03/02/2011 - 07:29 | 1010588 MarcusAurelius
MarcusAurelius's picture

It is confusing for sure as I watch it bounce around the 100.00 per barrel mark on the spot market. My research tells me a guy like Rogers is wrong. However it is tough to argue with a fellow with a winning percentage like him. However the big shots were wrong before and I think they will be wrong again. Governments do not like oil at this level and I suspect it won't stay here long. We'll see.

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