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Weekend Stock Market Analysis

(8/13/05)

This weekend I thought I would focus on the historical price of Oil and how it may have affected the Dow from the early 1970's through the early 1980's.  A chart of the price of Crude Oil (not adjusted for inflation) is shown below since the late 1940's.  If you adjust for inflation the price of Crude Oil would have peaked around $90 in 1980 however my main focus is on the overall trend of the price of Crude Oil since the late 1940's and not the actual price.  As you can see the price of Crude Oil was basically unchanged from the late 1940's through the early 1970's and then started to rise in 1972 before peaking in 1980 (points A to B).  This was then followed by a substantial drop from the early 1980's through the mid 1980's (points B to C).  Meanwhile from the late 1980's through the late 1990's the price of Crude Oil was pretty stable and traded between $10 and $20.  Then in the late part of 1999 the price of Crude Oil finally rose above the $20 level and has been steadily rising since.   

Meanwhile a a longer term chart of the Dow from 1970 to 1985 is shown below.  Notice that from the early 1970s through the early 1980's the Dow got stuck in an extended trading range between the high made in the early 1970's near 1050 (point D) and the low made in the mid 1970's near 550 (point E) as the price of Crude Oil rose.  Then as the price of Crude Oil began to drop beginning in the early 1980's the Dow finally was able to rally above its previous high in the early 1970's (point E) however it took nearly 10 years for this to happen. 

Now if we look at a current chart of the Dow below it appears to be exhibiting a similar pattern as it peaked in early 2000 as the price of Crude Oil began to rise again.   As mentioned above it took nearly 10 years for the Dow to make a new high after peaking in the early 1970's as the price of Crude Oil rose substantially from the early 1970's through 1980.  Thus the question at this point is will the price of Crude Oil continue to rise for a few more years similar to what occurred in the 1970's and will this prevent the Dow from rising above its early 2000 high near 11750 as well?  

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