Archived IMT (2009.09.25)

MIND THE STOCKS-OIL GAP. Considering the increasingly strong positive correlation between oil and stocks (0.77) over the last 3 weeks, S&P500 is expected to follow oil prices lower (SEE CHART http://bit.ly/6CcWT ), which could potentially call up 980 w/in 2 weeks. With S&P500 stands at 1,050 and US crude at 66.20, the S&P500/Oil ratio is currently at 15.9-- the highest level since April. Alternatively, the price gap between equities and oil could be filled by a rebound in oil prices instead of a decline in stocks. The reasons this is unlikely owe to escalating risks of a correction in the liquidity-driven stock market, prolonged upside ground (5-6%) for a USD rebound and the supply fundamentals for oil.