What a Weaker US Dollar Means For Your Stocks

JC Parets
December 11, 2021

If there is anything that can get this market going it's the US Dollar.

And granted, the S&P500 did just close at a new all-time high. That did happen Friday.

But as we have documented relentlessly here, most stocks are not doing that.

The Average stock on the Nasdaq is down over 30% over the past few quarters.

Most Emerging Markets got destroyed. Chinese Internet is down 60%. Biotechs are crushed down almost 40%. The IPO Index killed. And ARKK Funds are down over 40%.

All is not well underneath the surface.

In fact, all of those sectors I mentioned peaked in February this year. That's when the Nasdaq New Highs list peaked and Nasdaq Advance-Decline lined also peaked.

Most importantly (potentially) is that was when Aussie Dollar peaked, and I don't believe that's a coincidence at all:

Australian Dollar is a gauge of risk appetite around the world. Risk assets tend to be doing well if Aussie is strong.

Meanwhile, the a weak Dollar Index has been a tailwind for stocks and other risk assets. When the Dollar is strong, like it was in 2018, like it was in early 2020 and like it has been most of this year, stocks as a group have struggled.

So with Commercial Hedgers near extreme net long positions in Aussie Dollar Futures, and near historic net short positions in US Dollar Futures, the stage is set for a decline in the US Dollar.

AND, if that were to occur, I have a strong suspicion that you're going to get rotation underneath the surface, and those beat up sectors I mentioned will stop declining in price.

And if the worst areas are not going down, how are the strongest areas of the market likely doing?

I'd say pretty damn well, if I were a betting man. And as it turns out I am.

We want to be buying stocks aggressively if these Commercial Hedgers are right, and they tend to be, more often than not, near extremes.

We said coming into the week that it was going to be a big one loaded with a ton of information. And it was.

They came in buying stocks, all the way down the cap scale. The sold the crap out of Treasury bonds and rates ripped. And the S&P500 not only held that 4500 level easily, but actually closed at new all-time highs today.

We'd like to see follow through next week, but they closed out pretty solid. I have to say I was impressed with the week for the bulls.

As you can tell we get a lot of information from the Bond Market and Currency space to help us make decisions in the stock market.

It's really helpful. Here are the highlights from the CFTC report this week:

COT Heatmap Highlights

  • Australian Dollar: Commercials extend their long position by more than 3,000 contracts as they near historical extremes.
  • Coffee: Commercial hedgers remain net short, bordering on three-year extremes.
  • Palladium: Commercials are only a few hundred contracts shy of their historic long position.
  • US Dollar Index: Commercial hedgers’ net short positioning lingers near extreme levels.

You can click here to download our COT Heatmap.

We'll be discussing the US Dollar implications as well as a slew of other important data on Monday night's Live Video Conference Call.

Our December 2021 Mid-Month Conference Call is happening Monday, December 13, at 6:00 p.m. ET.

ASC Premium Members can click here to register.

As always, if you can't make the call live, the video and the slides will be archived and published here along with every other live call since 2015.

In the meantime, let me know if you have any questions, or just shoot me a note to say what's up!

JC

 

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