Why do stocks track the price of Oil?
"Anthony Russell - I agree with JohnFx. Petroleum is used in making many things such as asphalt, road oil, plastic, jet fuel, etc. It's also used in some forms of electricity generation, and some electric cars use gasoline as a backup form of energy, petrol is also used in electricity generation outside of cars. Source can be found here. But to answer your question of why shares of electric car companies are not always negatively related to one another deals with supply and demand. If investors feel positively about petroleum and petroleum related prospects, then they are going to buy or attempt to buy shares of ""X"" petrol company. This will cause the price of ""X"", petrol company to rise, ceteris paribus. Just because the price of petroleum is high doesn't mean investors are going to buy shares of an electric car company. Petrol prices could be high, but numerous electric car companies could be doing poorly, now, with that being said you could argue that sales of electric cars may go up when petrol prices are high, but there are numerous factors that come into play here. I think it would be a good idea to do some more research if you are planning on investing. Also, remember, after a company goes public they no longer set the price of the shares of their stock. The price of company ""X"" shares are determined by supply and demand, which is inherently determined by investors attitudes and expectations, ultimately defined by past company performance, expectations of future performance, earnings, etc.. It could be that when the market is doing well - it's a good sign of other macroeconomic variables (employment, GDP, incomes, etc) and all these factors power how often individuals travel, vacation, etc. It also has to deal with the economy of the country producing the oil, when you have OPEC countries selling petrol to the U.S. it is likely much cheaper per barrel than domestic produced and refined petrol because of the labor laws, etc. So a strong economy may be somewhat correlated with oil prices and a strong market, but it's not necessarily the case that strong oil prices drive the economy..I think this is a great research topic that cannot be answered in one post.. Check this article here. From here you can track down what research the Fed of Cleveland has done concerning this. My advice to you is to not believe everything your peers tell you, but to research everything your peers tell you. With just a few clicks you can figure out the legitimacy of many things to at least some degree."
If you believe in the efficient market hypothesis then the stock price reflects the information known to market participants. Consequently, if the 'market' expected earnings to rise, and they did, then the price won't change. Clearly there are circumstances, especially in the short term and for illiquid stocks, where this isn't true, but a lot of work points to this being the case on average. I found the answer. It was the Stock Ticker that I was looking for. So, if I understand correctly the price at certain moment is the price of the latest sale and can be used to get a global picture of what certain stock is worth at that certain instant. Stock prices are set by supply and demand. If a particular stock has a high EPS, say, $100, then people will bid more for that stock, driving up its price over one with a $10 EPS. Your job as an investor is to find stocks with low share prices, but which will give you high earnings (either in dividends, our future share price). This means finding stocks which you believe the market has priced incorrectly, for whatever reason (as an example, many bank stocks are being punished right now, even if the underlying banks are in good shape financially). If you want to beat the market indices, be prepared to do a lot of research, because you're trying to outsmart the market as a whole. The Oil futures are exactly that.  They are people forecasting the price of oil at a point of time in the future where they are willing to buy oil at that price. That said, Do you have evidence of a correlation of Price of oil to the shares of oil stocks?  Oil companies that are good investments are generally good investments regardless of the cost of oil.  If you did not know about oil futures then you might be best served by consulting an investment professional for some guidance. It's a lot easier to trade a contract based on the forward value (a futures contract) of some commodity, than say constantly trade &amp; deliver 1000 barrels of crude oil.   Along those lines, it's also easier to trade an option on the forward value than it is an option on the actual commodity, especially if you have the ability to exercise the option There is a difference between trading which is short term focussed and investing which is longterm focussed. On the long term what drives stock prices is still the overall economy and the performance of the underlying business aspects. I do not think that any trading algorithms will change this. These are more concerned with short term profits regardless of the underlying business economics. Therefore I think that longterm investing using index funds is still a viable strategy for most private investors. Royalty trusts track oil prices (they're a pure play on ownership of a portfolio of mineral rights and do not otherwise have the operations that the oil companies themselves have).  Many publicly traded ones listed at the embedded wikipedia link.   Oil tankers are having a bang up business right now as described in the article, but that's because of the low prices and flood of product from the middle east.  The article notes that inventories are near capacity, so terminals and pipelines may be in for a few good years, though these do not directly track oil price.  However, as a way to bet on oil or oil services, many terminals and pipelines are organized as publicly traded master limited partnerships or MLPs, often spun out of a major oil company for tax reasons, allowing fine-grained investment in specific assets. You would think that share prices is just a reflection of how well the company is doing but that is not always the case. Sometimes it reflects the investor confidence in the company more than the mere performance. So for instance if some oil company causes some natural disaster by letting one of there oil tankers crash into a coral reef then investor confidence my take a big hit and share prices my fall even if the bottom line of the company was not all that effected. I understand I am being a tad simplistic.  But we can all pull a Wikipedia article out of our ass can't we? https://en.wikipedia.org/wiki/1973_oil_crisis  Similar price increase ($3 --&gt; $12). But lets just compare the effects by looking at the length of the article and not the content. I concede I am again be a tad simplistic. But the oil shortage nearly escalated into a full blown war, crashed the stock market, and all these other implications. I think that supports my original argument to OPs question, dont you think u/raybrignsx? Because our entire economy is based on the stuff to keep going and every ounce has to be pulled out of the ground from somewhere.  Microsoft and Apple couldn't exist without oil to create the plastic and other components that go into computer hardware let alone getting employees to their campuses via car or bus. The stock market's principal justification is matching investors with investment opportunities.  That's only reasonably feasible with long-term investments.  High frequency traders are not interested in investments, they are interested in buying cheap and selling expensive.  Holding reasonably robust shares for longer binds their capital which is one reason the faster-paced business of dealing with options is popular instead.  So their main manner of operation is leeching off actually occuring investments by letting the investors pay more than the recipients of the investments receive. By now, the majority of stock market business is indirect and tries guessing where the money goes rather than where the business goes. For one thing, this leads to the stock market's evaluations being largely inflated over the actual underlying committed deals happening.  And as the commitment to an investment becomes rare, the market becomes more volatile and instable: it's money running in circles. Fast trading is about running in front of where the money goes, anticipating the market.  But if there is no actual market to anticipate, only people running before the imagination of other people running before money, the net payout converges to zero as the ratio of serious actual investments in tangible targets declines. By and large, high frequency trading converges to a Ponzi scheme, and you try being among the winners of such a scheme.  But there are a whole lot of people competing here, and essentially the net payoff is close to zero due to the large volumes in circulation as opposed to what ends up in actual tangible investments. It's a completely different game with different rules riding on the original idea of a stock market.  So you have to figure out what your money should be doing according to your plans. "Sure they work - right until they don't. Explanation: A stock picking strategy based on technical indicators is at worst a mix of random guessing and confirmation bias, which will ""work"" only due to luck.  At best, it exploits a systematic inefficiency of the market. And any such inefficiency will automatically disappear when it is exploited by many traders. If it's published in a book, it is pretty much guaranteed not to work anymore. Oh, and you only get to know in hindsight (if at all) which of the two cases above applies to any given strategy." A share of stock is a small fraction of the ownership of the company. If you expect the company to eventually be of interest to someone who wants to engineer a merger or takeover, it's worth whatever someone is willing to pay to help make that happen or keep it from happening. Which means it will almost always track the company's value to some degree, because the company itself will buy back shares when it can if they get too cheap, to protect itself from takeover. It may also start paying dividends at a later date. You may also value being able to vote on the company's actions. Including whether it should offer a dividend or reinvest that money in the company. Basically, you would want to own that share -- or not -- for the same reasons you would want to own a piece of that business. Because that's exactly what it is. Generally speaking, you want to find goods and services that are inelastic and also require oil as a cost. Oil company stocks make record profits when oil is high, because direct demand for oil is relatively inelastic. Profit margins of oil competition should also go up, as this creates inflation in general, as people seek alternatives to the inelastic demand. The stock market exists for two reasons. It lets companies raise money to invest, and it lets company owners cash out and get money instead of part-ownership of a company when they are ready to do so. But to accomplish these goals effectively, it needs many more transactions than just those kinds of transaction, because you have to be able to find a buyer when you need one and to have a market price. So there are also a lot of transactions that are just to try to make short-term profit. But we need those transactions to provide the market liquidity to let the stock market work properly for its actual purposes.