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OnIslandTrader's Blog : Dollar / Stocks Correlation

November 16, 2009

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Whether it be correlation or causation, justified or not, stocks have traded in a perfect inverse-correlation with the US Dollar for more than two months now. This correlation has been intact for over a year now, but has grown stronger as the rally off the March lows progressed. (Perhaps because when you can no longer justify stock price action based on technical nor fundamental merit, you gotta have some belief to cling to.) Have a look at a chart of the SPY and UDN to see it for yourself.

If the dollar experiences a snapback rally, we're in for trouble. If the technicals of the stock market break down or the fundamentals deteriorate and give reason to sell, we're in for trouble. If all three happen simultaneously, look out below! The falling dollar has bought this recovery some time, but so far the recovery has eluded us. With the correlation as tight as it has become it's only a matter of time till that time runs out. Let's hope the recovery kicks into gear by then.

3 Comment(s):

sporthunter Date

November 16, 2009 15:29 Abuse this post

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I look for a pull back on the overall market. I have taken some profits in my personal portfolio to develop a strong cash position. My target on a major pull back is 7600. I don't see this false rally holding. Protect the nest egg and don't overextend any position.

MightyMo

November 16, 2009 20:02 Abuse this post

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Someone once said 'let you profits run and cut you're losses short'. . Anyone in this market for awhile should be playing with the house's money anyhow. I've been on record for a DOW of 10800 touching 11000. I see 13000 next year. Think about it, sitting on the sidelines while the DOW hits 13000?

yuri19

November 18, 2009 03:33 Edited: November 18, 2009 by MackTheKnife Abuse this post

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Dollar and stocks are really correlated. Both has something to do into our economy. Both should work out so that progress will grow. Talking about our economy, people nowadays are getting obsessed into fashion style. Retro styles go in and out of fashion (it seems the "rocker" thing has almost run its course) but why bring THOSE back? Fashion styles that are more comfortable are one thing, but not everyone has the shape of a Barbie Doll. (In fact, no one does except Barbie.)

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