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Forget The Greek Tragedy, Follow The Dollar



June 23, 2011 – Comments (0)

We can examine this market until we are blue in the face. Will Greece get bailed out for a second time in two years or not? Will the European Union fall apart? The truth of the matter is that we just need to simply follow the U.S. Dollar Index. When the U.S. Dollar Index declines the major stock indexes will rally and inflate higher. The opposite is true when the U.S. Dollar Index rallies higher, the major stock indexes will deflate and trade lower. It is not a Greek story, it is a dollar story. Look at the chart below, you can clearly see how the S&P 500 Index trades inverse to the U.S. Dollar Index. It is as inverse as a chart can get. Are you kidding me, these two markets are polar opposites.

When the U.S. Dollar Index declines traders should watch the leading commodity stocks to trade higher. Stocks such as Cliffs Natural Resources Inc.(NYSE:CLF), U.S. Steel Corp.(NYSE:X), and Freeport McMoRan Copper & Gold Inc.(NYSE:FCX) will usually react and trade higher on the back of the declining U.S. Dollar Index. Should the U.S. Dollar Index start to rally these stocks are usually the first to decline and pullback, therefore, the U.S. Dollar Index must be watched closely at all times.

Nicholas Santiago

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