Rising Dollar Spells Trouble for Stocks
Monday, April 20, 2009 20:31Last week we mentioned that the spring rally had reached completion.The major averages were coming up against major resistance at a time when an oversold rally was losing momentum. Admittedly, our call was a couple of days early but today looks like a key reversal day. If the selling continues into tomorrows close, last week will mark a market top.
Buying of the US dollar has increased putting pressure on stocks and commodities. The chart below illustrates the relationship between the dollar and stocks. Notice that the dollar reached a peak in March around the same time stocks reached a bottom.
Below is a longer term picture. The 2002-2007 “Bull Market” had more to do with a devaluing dollar than economic expansion. 
Always watch the volume! The spring rally, though large in % gains, was moving up on decreasing volume which indicates a lack of buyers. Volume seems to have picked up towards the top.
Related posts:
Willy2 says:
April 21st, 2009 at 8:11 am
The declining USD was only ONE of a number of signs of leveraging up by investors in the last 5 to 7 years. These investors borrowed USD and invested that money outside the US. Now investors are DE-leveraging and that pushes the USD up. The rising S&P 500 during 2003 through 2007 is therefore – IMO – the reason the USD went down. If this was the case then one would expect the S&P to go down or the USD going up in that same timeframe. A better gauge is the Euro/Yen cross. Investors/speculators borrow Yen (low interestrate) to go long into equities. This pushes the Euro/Yen up and deleveraging pushes the Euro/Yen down.
Willy2 says:
April 21st, 2009 at 8:20 am
But I agree the rising USD is NOT good for US companies because it’s not good for US exports.
Willy2 says:
April 21st, 2009 at 11:45 pm
I must rewrite my comment (see above): The declining USD was only ONE of a number of signs of the leveraging up by investors in the last 5 to 7 years. These investors borrowed USD and invested that money outside the US. Now investors are DE-leveraging and that pushes the USD up. The S&P 500 went up during 2003 through 2007 in spite of a declining USD. If there was a correlation between the USD and the S&P 500 then one would expect both the USD and the S&P 500 to go up. A better gauge is the Euro/Yen cross. Investors/speculators borrow Yen (low interestrate) to go long into equities. This pushes the Euro/Yen up and deleveraging pushes the Euro/Yen down. The recent sell off was accompanied by a declining Euro/Yen.
armanini massimo says:
May 10th, 2009 at 8:30 am
Don’t see why! the usd is still at discount on ppp terms and the us economy seems to be the first to recover (at least historically). I think we have seen the worse in equity markets and being short could be VERY dangerous
Suzanne Willis says:
June 3rd, 2009 at 8:47 am
How about a mid-year update on your 2009 predictions. Isn’t it time to gloat some?