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Will This Early Rally Fade Again?



September 29, 2011 – Comments (0) | RELATED TICKERS: UUP , X , CAT

Nearly every day the major stock indexes gap up sharply or gap down sharply. The stock market participants are extremely focused on every rumor or word coming out of the European Union. Who really knows what to believe at this point? One day Greece is going to be bailed out again, the next day Greece is going to default. One day Germany says they will bailout the Euro Union, the next day they will not. This news is absolute insanity for anyone that trades off of news or the so called fundamentals.

What we do know as a trader is that the major stock indexes in the world have traded inverse to the U.S. Dollar Index. Therefore, as long as the U.S. Dollar Index declines the major stock indexes will usually inflate and trade higher. On the flip side, if by some chance the U.S. Dollar Index rallies or trades higher throughout the session the markets will likely decline and sell off again. The movement of the U.S. Dollar Index is the real driving force in the stock market. Who cares about economic reports these days? They are revised and never tell anyone the true story. Traders should just remember that the markets will trade inverse to the U.S. Dollar Index.

Some stock sectors that will trade higher on the back of a weak U.S. Dollar Index are energy, industrial metals, and believe it or not, technology. Should the U.S. Dollar Index decline throughout the trading session stocks such as U.S. Steel Corp (NYSE:X), Caterpillar Inc. (NYSE:CAT), and Chevron Corp (NYSE:CVX) could see higher prices. These same stocks will likely fade or decline if the U.S. Dollar Index rallies higher. Traders should watch for intra-day support on the U.S. Dollar Index futures (DX Z1) around the $78.15, and $78.00 levels. As long as the U.S. Dollar remains weak this rally could hold up into the close. If the U.S. Dollar rallies traders should watch out below.

Nicholas Santiago

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