Forget 2012, You Should Worry About 2013
Traders and investors have been obviously selling this stock market since September 14, 2012. As we all know by now, on September 13, 2012 Federal Reserve Chairman Ben Bernanke announced his latest quantitative easing program labeled QE-3. This announcement by Chairman Bernanke certainly helped President Obama to get reelected. Many investors were feeling pretty good about the stock market back in September. Now investors are looking at possibly new tax hikes and weaker corporate earnings. If there is anything that the stock market hates it is new taxes and weaker earnings by public corporations.
A fair case can be made that the only reason corporate earnings have declined is because of the stronger U.S. Dollar Index. When the U.S. Dollar Index strengthens it has generally caused the stock markets to weaken. This inverse relationship between the U.S. Dollar Index and the major stock indexes has been in place for the past 11 years. The problems that the central banks have now is that the economy around the world is declining faster than the United States and this could actually keep the U.S. Dollar stronger against other currencies such as the Euro, British Pound, and others. Traders can easily look at the recent strength in the PowerShares DB US Dollar Index Bullish (NYSEARCA:UUP). Should the UUP decline that is when traders will notice that the stock market will likely bounce and trade higher. The chart of the U.S. Dollar Index is clearly the most important chart that any trader can follow.
What is the U.S. Dollar Index going to trade in 2013? This question is probably the most important question that any trader can ask themselves. Now you can see why this is one of the reasons it is so important to interpret and read the charts that carve out patterns of emotion by investors and traders. When I examine the U.S. Dollar Index it tells me that if the U.S. Dollar Index trades above the $86.00 level on the charts that is when panic could really hit this stock market. Could this happen in the next year or two? The answer is yes, it is very possible that it could occur down the road. At least you all know the level on the U.S. Dollar that could cause panic in the global markets.
Some leading equities that trade inverse to the U.S. Dollar Index include Freeport-McMoRan Copper & Gold Inc (NYSE:FCX), SPDR Gold Trust (ETF) (NYSEARCA:GLD), ProShares Ultra DJ-UBS Crude Oil (NYSEARCA:UCO), and iPath Dow Jones UBS Copper Total Return Sub-Index ETN (NYSEARCA:JJC). You will notice that all of these equities are commodity related and that is usually the first equitie group to be affected by the stronger U.S. Dollar.