Friday, December 4, 2009
Observe the Power of the Dollar on the Stock Market
It looks like yesterday's late day sell off was just profit taking and protective posturing for the jobs number that came out today because the major indices rallied to new highs and the Nasdaq confirmed the Dow and S&P's highs from yesterday, which eliminates the short term bearish non-confirmation. The longer term divergences remain in solid place.
Today's better than expected jobs numbers has everyone doing cartwheels on TV about the economy and the stock market. However the dollar has rallied sharply this morning as you can see from the AUD/USD and EUR/USD charts attached which move opposite the dollar. The stock market rallied huge this morning but so did the dollar. The stock market's rally could not fight the huge headwinds that a dollar rally brings, mainly because most of the rally from the March 2009 bottom was due to dollar weakness to begin with. It was just an inflationary rally in prices, not a fundamental underpinning of strength in the market. So the Dow went from a strong triple digit gain this morning to negative territory where it sits today.
I, and many others, have been saying for a long time that the key to the stock market's rally and decline is the dollar. A dollar rally will result in a stock market decline, and vice-versa. If today's reversal holds, we'll see if it has legs and runs next week. But the fact that people sold good news and the dollar rallied on a great jobs report is definitely bearish, especially because the past several months have brought rallying on jobs report day. A change in recent trends are another sign of a top, and today we have another piece of evidence supporting that.
PLEASE NOTE: THIS IS JUST AN ANALYSIS BLOG AND IN NO WAY GUARANTEES OR IMPLIES ANY PROFIT OR GAIN. THE DATA HERE IS MERELY AN EXPRESSED OPINION. TRADE AT YOUR OWN RISK.