Still The Only Catalyst

March 6, 2023

She was always the one.

All along it was the US dollar that was the best indicator.

Old reliable.

So why should we abandon it now?

Look at the US Dollar Index overlaid with the short ETF for the S&P500.

In other words, when the blue line goes up, that means stock market shorts are making money (along with rising dollars). But when the blue line falls, that means the shorts are losing and people who own stocks are the ones making money (with dollars falling):

The strong negative correlation between stocks and the Dollar has been in place since 2016, and we've seen similar relationships like this in other periods of market history.

So this is not unprecedented at all.

But it has definitely been really helpful for us the past few cycles.

Here's a closer look at just the US Dollar. Those former support levels from Q3 of last year continue to come into play as resistance:

This recent rally in the Dollar came with weaker stocks, which is to be expected. February was also a really weak period seasonally, so none of this was a surprise.

More importantly, the seasonal tailwinds for the stock market are back. If that resistance up there for the Dollar Index keeps greenbacks under pressure, then stocks could have a very positive next couple months.