The market has set the stage.
From a seasonal perspective, the back half of the year should be strong.
When you consider the bearish sentiment readings we’re coming off of this summer, a massive shift in sentiment into year end makes perfect sense.
We’ve seen the breadth improvement, as we get more and more stocks making new short-term highs, and now sector rotation has started to kick in.
SO WHAT’S THE CATALYST?
It’s not the Fed.
It’s not the President.
It’s not a war.
It’s the US Dollar.
Even with the setup above, what’s it going to take to get stocks really going into year end?
I still think it’s a weaker US Dollar.
And we’re not seeing it, yet.
Take a look at how the Greenback is behaving relative to the largest 3 components in the US Dollar Index:
Do these looks like downtrends?
Do they look like bullish to bearish reversals in progress?
No. And No.
But I still believe that this is what is needed.
Over the past half decade or so, the US Dollar has had a very strong negative correlation with stocks and crypto assets.
With even just a little bit of Dollar weakness for a month, look how well stocks and crypto did.
And now look at the lack of progress when the strength came back to USD last week.
I don’t think that’s a coincidence.
The market continues to prove that this correlation needs to be front and center.
I would encourage you to not ignore this one.
Let me know what you think!
What are you doing about it?
In the meantime, Premium Members make sure to check out the replay of last week’s Live Video Conference Call. We discussed all of this and so much more. You can also skip right to the Trade Ideas page if you’d like.
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See you in there!