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?

The Economy

On 12-12-14 I wrote: "In 2008 oil fell by $100 a barrel in 6 months (a 75% drop)! If oil follows the same path we could see oil at close to $30 before it stops falling. Now that sounds unlikely, but it has happened before, so why would this be different? What is also interesting is that stock prices eventually followed the price of oil. The S&P 500 fell from 1560 to 666, a fall of about 60%. So we could see stocks fall by as much as 50%. That would put the S&P 500 easily below 1000. So here is what I am predicting. Oil will fall below $40 and the S&P 500 will fall below 1000. Unfortunately I can’t put a date on it, but I would think that within six to nine months to be reasonable. Wow, things are going to get ugly."

That was over a year ago and maybe my prediction is finally coming to pass. Oil is well below $40 and the S&P 500 has had it's worst first week of trading of the the year ever. With the S&P 500 closing at around 1900 today, there is a long way to go. It could get very ugly this year.

What do you think?

The Economy - Stocks

Stocks were down considerably yesterday. So far stocks have been down for the first two trading days of 2015 (and are down thus far today). The big news though has been oil, which is still falling. Oil is now bellow $50 and still falling! Lower oil prices is good news for those of us who do a lot of driving (and anyone else who needs a break in gas prices), but the sudden collapse is not good for the rest of the economy. Just today US steel announced that it is idling two steel plants and might be laying off hundreds of workers all because of the fall in oil prices. Yes, oil was too high, but the high prices were driving a boom in everything related to the oil business (and many other sectors of our economy as well), which included a lot of great paying jobs. Now the layoffs and idling will begin, which will spread across the economy and cause a recession. The last thing we need right now is a recession. If the price of oil stays below $50 for any prolonged period of time (six or more months) things will get ugly. I think these down days on the stock markets will not be our last.