Personal Finance Buzz

Like the Christmas shopping season the term “Santa Claus Rally”, seems to be used earlier every year. So what is the “Santa Claus Rally”?

This morning the U.S. Dollar Index was in rally mode. As the dollar rallied higher the major stock indexes in the United States sold off sharply. Around 11:00 when the U.S. Dollar Index traded around the $79.10 area it reversed and sold off. As we all know by now when the dollar dips the market flips. The Dow Jones Industrial Average has reversed and early 80.00 point decline and is now trading in positive territory. Nothing has changed when it comes to the dollar. Please see the early blog post titled, 'U.S. Dollar Index Gets A Bid' for more on the early action this morning. Please notice the identical inverse relationship in the dollar and the Dow Jones Industrial Average in the chart below.

Nicholas Santiago
InTheMoneyStocks

This morning, the major stock market indexes are pulling back slightly. The pullback in the stock market indexes come as the U.S. Dollar Index begins the morning trading higher. Often, when the U.S. Dollar Index starts the day higher before the opening bell, it will fade throughout the trading session. Should the U.S. Dollar Index decline during the trading session the major stock indexes will usually inflate and trade higher. If you simply look at a daily chart of the U.S. Dollar Index you can easily see that that the major stock indexes will trade inverse to the major stock indexes. Last week, the stock market rally was on the back of the declining U.S. Dollar Index.

The S&P 500 e-mini futures(ES M1) are trading higher by 2.75 points to 1331.75 per contract. The major stock market indexes continue to climb and remain on a sixteen trading day rally. The highly followed Dow Jones Industrial Average has climbed by 871.0 points in just three weeks time and is making a new high for the year. The geopolitical events in the world do not seem to matter at this time as the markets seem to rally every single day.

This morning, the central bankers of the world have staged a coordinated effort to provide U.S. Dollar liquidity. In other words, the central banks will try to crush the U.S. Dollar in order to inflate the stock market higher. Traders must continue to watch a chart of the U.S. Dollar Index very closely. Over the past three trading sessions the U.S. Dollar Index has declined sharply causing the stock markets to inflate and stage a three day rally. Simply put, the U.S. Dollar Index is trading in an inverse lockstep relationship to the U.S. Dollar.

Once the U.S. Dollar Index futures (DX U1) traded higher this afternoon the major stock indexes sold off. The Dow Jones Industrial Average just reversed a 70.0 point rally and are now trading in negative territory. Should the U.S. Dollar Index decline and sell off again the major stock indexes could reverse and move right back up. Simply put, the major stock indexes are trading inverse to the U.S. Dollar Index.