Chart of the Day: Steamroller Blues

September 7, 2022

You've heard me say it a million times by now.

It's going to be really difficult to make money long most stocks or crypto the rest of the year if the US Dollar remains strong.

Check out last night's video about what we're doing about it.

We got just a little bit of Dollar weakness starting in mid-July and stocks ripped higher. Thousands of points added to the Dow, Ethereum doubled and the average stock on the Nasdaq rallied over 40%.

We saw one of the most historic short-squeezes in history. And all it took was just a little bit of Dollar weakness. It wasn't even that much.

But then once that Dollar strength came back last month, the bid in stocks and crypto disappeared.

Here's a zoomed out look at the negative correlation between stocks and the Dollar:

When the Dollar peaked in late 2016, stocks went on to have one of their best years in history, and so did Crypto.

Once the Dollar bottomed in in early 2018, stocks and crypto stopped going up.

It wasn't until March of 2020, when the Dollar peaked again, that the epic rally in stocks and crypto was sparked. Stocks went on to have their greatest 52-week period on record.

But when the Dollar bottomed last Spring, it's been a struggle for stocks and crypto ever since.

As an investor you have 3 choices:

1) You can bet that it's just a coincidence if you want.

2) You can bet the correlation was in place, and now it's going to change, all of a sudden.

3) You can make the bet we've been making, that the negative correlation between stocks and the Dollar will remain in place.

Door #3 continues to prove to be the right choice here.

And we'll let the market dictate if/when that changes.

To be clear, it has not changed. In fact, the correlations are stronger than ever.

With that in mind, this isn't just a Euro story.

While the Euro does represent almost 60% of the US Dollar Index, when you back out the Euro and Equal-weight the rest of the G-10 currencies, you'll get the exact same picture.

And if you really want to be cute, you can look at the rest of the top 30 currencies around the world, where Euro represents just a tiny fraction of the calculation, and once again you'll get the same picture.

US Dollar Strength: