Lower Crude does not mean higher Stock Prices

Discussion in 'Trading' started by PohPoh, Jan 5, 2007.

  1. This correlation is a load of garb, and anyone with half a tit can see it.

    For your viewing pleasure..
  2. S2007S


  3. There are certain indexes that are effected by lower crude.

    The Nasdaq is not really effected by crude, but its effected by the TNX.

    The Dow Industrials is effected by the price of crude, well, because they are industrials.

    Airlines are effected by crude.

    The S&P 500 is a mixed bag. Some of its components are more effected then others. Dont forget that there are companies like Exxon in the S&P which would stand to increase by higher oil prices.

    Each company and index has its own properties. Each case has to be examined carefully.

    If the truth be known, the only thing holding up the S&P 500 today is the fact that oil did not go through the support. Companies like Exxon are rallying. Hopefully, not on a dead cat bounce because I do have some energy positions. If oil did break the support, then the S&P would tank below resistance.
  4. Maybe not for the broad market, but if you overlay the XLE with the XLK you will notice the divergence in august
  5. belmondo



    and how about ER2? is this index affected with oil? some other guy from ET told me that yes. if oil is down so does ER2

    is that true?
    thank you
  6. TradeTheNews

    TradeTheNews ET Sponsor

    Lower commodities are a net positive for the broad markets, though a small postive, since it is largely offset by the damage lower prices will do to the Metals & Mining, and Oil & Gas sectors

    A slower US economy this year could help keep commodities depressed, though the bigger question may be if China's demand for commodities will slow down this year
  7. There are also some other correlations that are not easy to see. Such as how would the price of crude effect a place like McDonalds? Better yet, how would the price of ethanol effect McDonalds?

    Most of the business at McDonalds is through the drive-thru. Higher oil means less trips in the car.

    McDonalds also uses a high amount of high-fructose corn syrup. Its in everything like sodas. A higher price of crude means a higher price for ethanol which means a higher price for corn and lower margins for McDonalds.

    When looking at a chart for McDonalds, we see that it had nearly flat performance in 2005 and then was dipping down in 2006. It turned up as soon as oil started going down.

    On the other hand, Papa Johns is a very different story. If oil is higher, then people are not going to dine out. Instead, they will order pizza. In looking at the chart, we see that Papa Johns had ramped up as oil rose and then fell as oil fell.

    You have to study each index and each different company closely in this regard. Each stock reacts in its own way to higher energy prices.