Thursday, February 25, 2016

Algorithms and the price of oil

I have noticed of the past few months that whenever oil was higher stocks are higher. I've also noticed that when oil was lower stocks were lower. My suspicion that there was a correlation has actually been confirmed a little bit. I was reading today that since much of the trading on Wall Street is done by algorithms, most of it is automatic. In other words, it is a computer driven market. It also turns out that one of the components in the algorithms that are used is the price of oil. So when the price of oil goes up the algorithms kick in and they buy stock. When the price of oil goes down the algorithms kick in and they sell stocks. That clearly explains the correlation I've been seeing in the stock market. That might be an interesting trade. I wish I had some money to actually do the same thing the algorithms are doing. To bad I don't. Plus, I know that as soon as I made the trade the algorithms would be changed and I would lose my shirt. By the way, stocks closed higher today. I wonder what oil did?

What do you think?