Oppenheimer's Wald: Lower Oil Prices Point to Higher Stocks

Friday, 29 Aug 2014 06:35 AM

By Dan Weil

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Here's a bullish factor for stocks that doesn't get much play: lower oil prices.

A recent study by Ari Wald, head of technical analysis for Oppenheimer & Co., found an inverse relationship between oil and stock prices, CNBC and Yahoo's Talking Numbers reports.

Looking at more than 30 years of data Wald found that whenever oil prices aren't more than 50 percent higher than a year earlier for any weekly close, stocks on average rise for the next year.

Editor’s Note:
Retire 10 Years Earlier With These 4 Stocks


And when oil prices are lower than a year earlier, stocks climb an average of 13 percent in the next year.

Stock bulls will be happy to hear that, given that West Texas Intermediate oil prices dropped 12 percent in the 12 months through Aug. 22.

"This is good. This is a tailwind for stocks," Wald tells Talking Numbers. "On the flipside, when you get spikes — when the rate of change is above 50 percent — that's the time to get worried. If you look back at market tops in 1987, 2000 and 2007, all occurred with spikes in oil."

October WTI contracts traded at $95.11 a barrel Friday morning, up 56 cents from Thursday, representing the fourth straight day of gains.

"The downside from current price levels is quite limited," Paul Crovo, an oil analyst at PNC Capital Advisors, tells Bloomberg. "Supply, demand conditions continue to remain relatively tight going into the second half of this year."

Editor’s Note: Retire 10 Years Earlier With These 4 Stocks

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