Another US Dollar Dilemma
Some Key Charts To Watch
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Back in October, I made what turned out to be a near perfect call on the US Dollar which marked the exact top in the Dollar Index (DXY) which in turn also marked the exact bottom for stocks, if you missed that, you can find that letter here - The US Dollar Dilemma
The reason that’s important?
Well, I have another dilemma.
For longer term subscribers, you’ll already understand I like to pay very close attention to the intricate intermarket relationships and I enjoy putting in the hard yards that very few are prepared to do.
I do it because I can usually get a handle on market direction BEFORE the big moves hit, and in this weeks letter, I think there’s a few important charts worth communicating so that you can watch them too.
Given the headline is all about the US Dollar, lets start with captain obvious DXY.
US Dollar Index (DXY)
The US Dollar is still inversely correlated with US stocks and its been that way a while.
Over the last 18 months, in a nutshell it’s been,
Dollar Up = Stocks Down
Dollar Down = Stocks Up
So it seems fairly reasonable and logical to continue using DXY for the purposes of “assisting” with broader market direction. (let me add that there are many more charts I’m watching closely)
Last week I communicated a chart identifying fresh 6 month lows in DXY, but since then the dollar has rallied to the upside and is now testing levels I want to keep a close eye on.
The Euro
Same thing with the Euro.
If you don’t know why the Euro is important or why I’m presenting the chart, lets take a glance at the weightings for the US Dollar Index.
58% Euro
13% Japanese Yen
12% British Pound
9% Canadian Dollar
4% Swedish Krona
4% Swiss Franc
The Euro vs US Dollar
A better visual is to overlay the 2 charts which show why the Euro is a big piece of the puzzle.
They’re very clearly inversely correlated.
Let me break that down in simple terms and what it potentially means.
Euro Down + Dollar Up = Stocks Down
NYA, IWM, SPX (Update From Last Week)
When we look at the major averages, a few key charts are still hovering around significant levels.
But let me be clear, at this exact moment in time, my work is still 95% geared toward favourable risk : reward bullish setups, and these are still being put to our clients and members because plenty of stocks are doing well and continue going up.
I just don’t see the point in fighting uptrends unless there’s a strong technical signal.
We’ve been hitting massive upside objectives in high conviction names like TSLA +75%, META +50%, AMZN +12% etc to name a few over the last month but to clarify, I am now starting to do some due diligence to the down side in case the currency charts laid out above all start to come together.
In Conclusion
There are many data points to use. It’s truly an endless stream of data.
Whether you’re into economic data or heaven forbid analyst year end targets, I prefer to filter things down to what matters, and for me, the only thing that matters is price.
I’m told I’m 1 of the very best in the world at removing all the confirmation biases and noise from the markets and I think the charts laid out above are definitely worth adding to your watchlists.
Let me add, I truly hope the charts laid our above do NOT play out, I hope they all rebound in the direction of the recent trends because I’m enjoying the bullish rally as much as everyone else and I hope the market continues to rip higher for the next 10yrs, it’s just easier that way.
I laid a lot out in our recent detailed YouTube analysis last weekend.
But I don’t see anything wrong with having a plan “just in case”.
Do you see it different?
Let me know in the comments.
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