Sorry!! The article you are trying to read is not available now.
Thank you very much;
you're only a step away from
downloading your reports.

Dialing for Dollars



As I turn on the terminal today, I see that the dollar is weak, bonds are strong (lower yields) and equity futures are down moderately. This is what everyone has been referring to as the "macro trade" lately. In other words, traders and investors are not (in theory) using individual stocks or bonds due to their fundamental attractiveness, but are trying to make money by capturing the move of various financial instruments based on their seemingly direct relationship.

Over the past few weeks, the concept of stocks and bonds going in different directions due to the move in the U.S. currency has become very popular and should be looked at in possibly explaining the day-to-day moves in an otherwise unexplainable random market.

There has been a pretty clear relationship of the asset classes over time and I thought a technical look might make sense over both the near-term (daily) and intermediate-term (weekly). Basically, the daily charts show that all three financial vehicles are in a very well-defined range (shocker) and that they do have a direct relationship with one small difference over the past few sessions that bears watching. Over recent days, the dollar has shown weakness while bond yields and stocks have remained at the upper end of their range. This is a slight difference of late that may be important -- unless the dollar begins to strengthen, it may be an early indication that bond yields and stocks may be headed down to the lower end of their respective ranges.

Stocks remain near the upper end of the clearly defined range...

Treasury yields show a similar move ...

But the Dollar Index (TXA) is at the lower end of its range.

The weekly charts suggest a trend change is not imminent. That isn't to say it won't happen, but if you look at the charts without any bias, they all remain in a downtrend. In other words, until there is a change in trend for at least one, stock prices, 10-year note yields and the Dollar Index should remain in an intermediate-term downtrend. Again, in my view it appears that the dollar may hold the key. There the downtrend is steepest, so it may be the first to be broken. If that were the case, then a trend break in stocks and bond yields should not be that far behind.

The SPX is still a bit away from a trend break, although support has held so far ...

It would take a major back up in yields to change that trend ...

Similar to the daily view, the weekly chart suggests the dollar has the best chance of trend break...

< Previous
  • 1
Next >
No positions in stocks mentioned.
The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.
Featured Videos