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Some keys To The Puzzle



September 17, 2010 – Comments (0)

The U.S. Dollar Index is one of the most important charts in the stock market. Simply put every major move or reaction higher in this stock market is about inflating stocks when the U.S. Dollar Index declines. The opposite is true when the U.S. Dollar index rallies the stock market will usually sell off and deflate. At this time the Federal Reserve Bank and the U.S. Treasury have been doing everything possible to inflate this market back to health.

Over the past few days the U.S. Dollar Index has sold off and declined giving the major stock market averages a rally this week. While everything looks good on the surface of this recent rally it is important to note that most leading commodity stocks have not participated this week. Cliffs Natural Resources Inc.(NYSE:CLF) is a leading iron ore pellet producer that will usually trade sharply higher when the U.S. Dollar declines. This stock has actually fallen over the past few days. Other leading commodity stocks that have been somewhat weak in the past few days have been U.S. Steel Corp.(NYSE:X), Freeport McMoRan Inc.(NYSE:FCX), Nucor Corp.(NYSE:NUE), and AK Steel Holding Corp.(NYSE:AKS). Now it is very possible that all of these leading commodity stocks are weak due to the recent decline in the Shanghai Index(Chinese stock market) over the last few days. China is certainly part of the equation and must be watched very closely in the next few weeks.

This week is also quadruple witching options expiration which usually makes for a volatile and choppy week. However, this market has steadily traded higher all week on very light volume. Regardless of the recent market action it still seems that the stock markets will trade inverse to the U.S. Dollar Index. That is just the way it has been over the past few years and until that changes that is the way it is. When the commodity stocks start to fail this is a very good indication that this rally is coming to an end.

Nicholas Santiago
Chief Market Strategist

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