Dow Jones Industrial Average Surging Despite Oil Collapse

short-oil-etfMartin D. Weiss: The Dow Jones Industrial Average (INDEXDJX:.DJI) has surged again … reversing its early-year losses … closing in on new all-time highs … and possibly heading still higher.

Moreover, this is happening despite the big oil-price collapse, despite the expectation that energy companies could slump, and despite fears of deflation which the oil market is stirring.

Why? And what is the best, most reliable way to profit? For an answer, let’s do two things together this morning:

First, let’s walk through our team’s past and current oil-price forecasts — and how they relate to stocks. (That will answer the “why” question.)

Second, let’s drill down to see how cheaper energy impacts each of the ten major industry sectors in the market. (To answer the how-to-profit question.)

Our Forecasts on Oil Prices and Stocks

Chart showing drop in oil prices

Click here for larger view

No one can forecast the future with precision, and we all must admit our share of misses. But let’s run through a quick history of our team’s forecasts on this topic …

Money and Markets, November 11, 2013: Larry Edelson warns readers that oil prices will plunge below $65 per barrel and then even further to the $50 level. Not only that, but he does so with a chart that shows the precise levels and direction of the market. (This was one full year before the oil-price decline began!)

Money and Markets, December 10, 2014: By this time, oil is already down to less than $67 per barrel, and the energy bulls are calling for a big bottom. But right in his headline, Larry insists “Oil Plunge Has More to Go!” His exact words:

“Oil is now hovering just above that first major support level. Once it cracks that, oil will plunge to as low as $40. That leg down to $40 could begin any moment, or perhaps after a short-term rally.

“The crash in oil prices is hard to believe, when there are so many diehard oil bulls out there. Even more so when you consider all the political hot-spots around the world that are now causing so much turmoil.

“But from a fundamental point of view, oil is not bullish. Global oil inventories are fine now; there is no squeeze in supplies. Moreover, as we all know, the U.S. now has more energy of its own than it’s ever had. …

“What’s driving oil lower is the same thing that is driving nearly all commodities lower. It’s called deflation. That’s especially true for Europe. The euro region is in a freefall. Almost every country in Europe is contracting, severely. Unemployment remains sky high, threatening to move even higher.

“And all across the globe, rising geo-political tensions and conflict are driving most business people and investors to play it safe, park money in cash, take risk off the table, and hoard and protect their capital and wealth. That too is deflationary, for all but the U.S. equity markets!”

Larry’s main point:

Flight capital — running from the world’s hot spots AND from deflated commodities like oil — will be very positive for U.S. stocks, especially for the highest-quality stocks on the market.

Money and Markets, December 22, 2014: We pinpoint precisely when and why the stock market surges when oil prices fall, and, again, we give you the story right in our headline — “Why the S&P Surges When Oil Plunges.”

The reasons: It’s because of major transfers of wealth — the companies and countries that sell oil are the losers, and the companies and countries that buy it are the winners. It’s because the winners greatly outnumber the losers. And it’s because of a major boost to the global economy.

That’s the history of our forecasts and the reasons WHY. Now let’s move on to …

Which Sectors Benefit The Most?

Here are our conclusions in a nutshell, based on an extensive study we’ve just completed on all major oil-price declines in the past quarter-century, focusing on the two most recent bull markets with hefty oil-price declines (1990-92 and 1996-98) …

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