Moreover, it is most likely that the United States will be the first country to recover from depressed economic activity. Given such a prospect, money will flow back into the US and the Dollar will see strong demand.

I know it’s counter-intuitive, but I’m just pointing out that all of the dollar weakness that the “Gloom & Doomers” have been predicting may not actually happen.

“For example, if the dollar falls 10%, the price of oil in dollars does not automatically rise 1%, 10%, 20% or by any other constant factor.

n 2002 the percentage increase in oil was a bit more than three times the fall in the dollar against the euro (oil rose 50.1%, the dollar fell 16.4%). In 2003 the relationship was reversed, the dollar fell almost three and a half times the percentage that oil increased (dollar -21.1% vs. oil +6.1%). In 2004 the difference reversed again at a factor of 3.4: The dollar lost 7.3% against the euro, and oil rose 24.7%.

In 2005 and 2006, the oil price moved in tandem with the dollar. The dollar and the price of oil rose in 2005, and both slipped in 2006. In 2005 the price of oil accelerated four times the amount (in percentage) of the gain of the dollar against the euro (the dollar gained 12%, oil added 51%). In 2006 the relationship was almost equal: The dollar lost 12% against the euro, and the price of oil fell 8%.

Again in 2007, the inverse relationship reasserted itself but now at a factor of 6.18, (the dollar fell 11.5% against the European currency, while oil shot up 70.8%). In 2008 the dollar fell 9% (at the low of $1.6037), and oil gained 46.2% (at the record crude price of $145.66). Through July 29, the dollar had regained 2.8% against the euro, but oil has sunk 16%.

Approximately three-quarters of the time since January 2002 (five years out of seven) the dollar and oil have moved inversely to each other. But even in those five correlated years, the factors are wildly disparate. If we take the percentage of the rise in oil against the decline in the dollar against the euro. the ratios are as follows: 2002, 3.09-1; 2003, 1-3.49; 2004, 3.38-1; 2007, 6.18-1; 2008 (to July 29) 3.81-1.

Even if we ignore the two years when oil and the dollar moved in the same direction, the correlation between the value of the dollar against the euro and the dollar price of oil is directional at best. It does not have any predictive value for the degree of change.”

You nailed it. Again, oil is correlated with the dollar, not the US Equity Market. The Treasury’s plan is expected to cause inflation (which isn’t a bad thing in an environment of deflation) but the market that suffers will be the dollar.

There’s more cross-currents going on than in ‘normal’ times and it would behoove us to see inflation.

The stock market would likely rise once commodities started going up, but how long and how fast is yet to be determined.

True, we are seeing strength in commodities across the board but it’s mainly due to a weaker dollar. Commodities roughly are correlated (inversely) to the dollar more than the equities market. If you do a long-term study of Oil and the S&P, one will find no correlation. Sometimes it will trade lock-step, other times not. Generally the ‘lock-step’ occurs when both markets are falling.

I’m still of the opinion that the stock market will see a very decent rally perhaps up to 1,000 or 1,000 after we get a test of the lows, and that could be a catalyst for higher oil prices (and commodities) across the board.

But you said it – this is a difficult time to be trading intermarket relationships.

It would scare me to see us going much lower than 650 here (immediately) on the S&P 500.

And there’s some undercurrents I’m picking up from leading economists slamming Geithner’s new “Zombie Bank” plan (details were leaked) so if the market rejects that, we could see a swift decline. Details will (finally) be released this week.

“Official speeches to assure investors and prop up the markets have routinely come ahead of financial disasters. The following will uncover some of reasons why CBS, Bernanke, the Fed, and other members of the power Elite are lying to you. We will then explore the mechanics of how a total Fed collapse can happen. And we’ll end with a review of how a stronger police state is being formed.”

Our Engineered Meltdown: End of the Beginning
http://www.gamingthemarket.com/2009/03/end-of-the-beginning.html

Not saying that it will, but it does seem to have ‘open air’ chart space above the break-out point, coming off the multi-swing positive divergence and rounded reversal. Using technical analysis, one could make a strong case odds favor higher oil prices (to lower) here. Fundamentally, that might not be the case.

The $70 zone would be a likely ‘magnet’ chart target thanks to multiple sources of moving average confluence on the weekly and daily charts.