Don't your love the currency market? The dollar is zooming higher as prospects in Europe have dimmed because if growth there is slower than growth here, money flees euros and moves into dollars. We look good not because the stimulus package worked or Wal-Mart issued an upbeat forecast (which it did not) but because the other guy just fell down.
Whoopee for us!
The pace of the dollar rally this week has gotten a tad euphoric though. It broke through not one but three resistance features (subscribers know what they were) in short order and that is not exactly what you want to see in a sustainable bull market. The tide rushed in. It can rush out, too. What we want is a reasonable advance to a place that brings out seller. A mild pullback as everyone tries to trade. And then another reasonable advance as demand is able to soak up all the supply offered by the bears.
The strong dollar and falling commodities, since commodities are priced in dollars, combined to send the stock bulls out in droves. But then again, the same conditions happened Thursday and the Dow fell 220 points. Media, do me a favor and stop trying to fit the news to the market. There is no correlation between oil prices and stock prices. Go explain why stocks rallied in 2007.
And if oil and gold fall when the dollar rises, will someone please 'splain me why stock prices should not fall for the very same reason. Are Mom and Pop investor buying their 10 shares of IBM in euros?
Yeah, yeah, a strong dollar means there is demand for domestic assets and that can overcome the currency thing. Whatever. But please don't tell me the market moved on one bit of news. It's not linear. It is far too complex for that.
I wrote weeks ago that the dollar will hold the key to the stock market and right now it should mean the bear market rally should become a bull market rally. Not so fast. The dollar may be marginally above its bear market trendline, at least the one from 2006, but years of studying market action tells me that it is far from a reliable breakout at this time. Emotions drove the move higher (although they blame the European economic outlook for it even though the rally began days before that news). If this truly is a new trend in the US dollar then I would expect a small pause here and then another breakout. That one I might believe.