Expect The Wild Swings To Continue
This morning, the major stock indexes are trading sharply higher. The 150.0 point rebound in the Dow Jones Industrial Average comes after yesterday's bloodbath decline in all of the major stock market indexes. The daily moves in the stock market have been very dramatic with wide range swings. One day risk is on and the next day risk is off. The trend since August 2011 has been very choppy and sideways. Is there so much uncertainty that traders and investors are not willing to commit capital to this market for more than just a few days, or is there something else moving this market in such erratic fashion?
If traders have not noticed yet the major stock indexes seem to trade inverse to the U.S. Dollar Index. When the U.S. Dollar Index declines everything from Amazon.com Inc (NASDAQ:AMZN) to Rio Tinto plc (NASDAQ:RIO) will inflate and trade higher. Most traders expect the commodity and energy sectors to inflate higher when the dollar declines, however, these days we see the financial, tech, agriculture, transports and consumer staple stocks all rally on the back of any dollar decline. Essentially, every trade is a trade on the U.S. Dollar Index.
Over the past two trading session the U.S. Dollar Index futures (DX Z1) have bounced sharply higher by $2.50 to over $77.50 per contract. During that bounce in the U.S. Dollar Index the highly followed Dow Jones Industrial Average declined lower by 600.00 points in just two trading days. These moves are dramatic by anyone's standards. This is not your parent's buy and hold market anymore. Traders should expect these wild swings to continue as long as central banks and countless governments are constantly dabbling in the market place.