The U.S. Dollar Index Flexes Early Muscle
When the U.S. Dollar Index(DXY) rallies higher the major stock market indexes will come under pressure and deflate lower. That is exactly what is happening this morning at the start of the trading day. As soon as the DXY traded higher everything in the market sold off, especially commodity related stocks. At this time the most important chart that a trader can follow is the U.S. Dollar Index.
Many traders and investors have been selling the major stock indexes on Fridays. Recently, four of the past six Friday trading sessions have been sell offs. This is certainly a change in character, the major market indexes normally rally or finish flat on Friday's before the weekend. Traders and investors must really follow the U.S. Dollar Index chart. If the U.S. Dollar Index declines intra-day then the major stock market indexes will inflate higher. This is exactly what happened yesterday. If you look at an intra-day chart of the U.S. Dollar Index from yesterday, you can clearly see that the U.S. Dollar Index topped out exactly as the S&P 500 Index bottomed. We do not expect that inverse relationship to change anytime soon.
Some leading stocks that will usually rally higher from a decline in the U.S. Dollar Index include Caterpillar Inc.(NYSE:CAT), Suncor Energy Inc.(NYSE:SU), and Southern Copper Corp.(NYSE:SCCO). Traders should take note that all of these stocks and most other commodity sensitive stocks will decline sharply should the U.S. Dollar Index continue to climb higher on the session.