Mark Hulbert says Oil and Stocks can't keep going in parallel. Who will take the dive? http://www.marketwatch.com/news/sto...x?guid={F2307C5B-F746-41D5-82AD-8209A6071B42} It used to be taken as axiomatic that oil and equities moved inversely. As recently as five years ago, for example, an academic study found that an investor could have easily beaten a buy-and-hold in the stock market over the previous three decades by following a simple rule that calls for being out of stocks whenever oil, in the previous calendar month, rose by at least 5%. See study And yet somebody forgot to refresh the stock market about this axiom. Though crude oil keeps barreling higher, fast closing in on the $100 mark, the stock market hardly seems unfazed. Tuesday was no exception: Crude oil futures rose 3% on the day, and yet, far from falling, the Dow Jones Industrial Average ($INDUow turned in a triple-digit gain. It seems fair to say that these trends can't keep going forever. But, if that's the case, which market is going to blink first - stocks or oil? The nearly-universal consensus among the nearly 200 newsletters monitored by the Hulbert Financial Digest, as well as from investment-oriented blogs I read: Stock investors are in denial right now. Investors in the oil market, in contrast, are on solid ground. Of course, any position held this universally triggers a contrarian reaction, and this one is no exception. Richard Band, editor of the Profitable Investing newsletter, who pursues more of a contrarian approach than almost any of the newsletters I monitor, thinks the consensus is dead wrong. Band thinks the oil market is forming a bubble. This is what Band had to say about the oil market a week ago: "Six years ago, in the wake of 9/11, West Texas crude sold for less than $18 a barrel. It has since skyrocketed five times a fantastic rise by almost any historical standard ... "Of course, we all know the standard explanations. China and India are gobbling up the world's incremental oil output. The Federal Reserve's loose monetary policies have trashed the dollar ... And ongoing geopolitical tensions have only heightened the speculative appeal of hard assets generally." "All these things are true. Yet it's also true that markets tend to exaggerate the impact of well-known economic factors. Indeed, when 'everybody' seems to know the story by heart, the trend is likely due for a significant interruption." To be sure, knowing that the oil market is forming a bubble tells us little about when it might burst. I should know, because more than two years ago I devoted a column to the possibility that oil was forming a bubble. A barrel of crude now costs more than $40 more than it did when I wrote that column. See column Oops. Nevertheless, as Band points out, "market momentum has a habit of lasting longer than most rational observers expect ... This bubble, like the others before it, will eventually burst, with painful consequences for investors who overstay their welcome." And we need only recall the bursting of the Internet bubble in March 2000 to appreciate Band's comments. After all, for a number of years leading up to that bursting, an increasing number of advisers and investors alike became convinced that a bubble was indeed forming. But Internet stocks kept going ever upwards. To be sure, just because it is possible that oil is forming a bubble doesn't mean it is. But if you are among the overwhelming majority who currently think the oil market is right and the stock market wrong, you might try on for size the possibility that maybe, just maybe, the reverse is the case. Mark Hulbert is the founder of Hulbert Financial Digest in Annandale, Va. He has been tracking the advice of more than 160 financial newsletters since 1980.