Nearly every trading day the U.S. Dollar declines and the stock market indexes inflate and trade higher. The rare spike in the U.S. Dollar Index was on October 19th, when the U.S. Dollar Index spiked higher by more than 1.00 point. Obviously, this was the same day that the Dow Jones Industrial Average closed lower by 165.00 points. However, the next trading day the U.S. Dollar Index reversed lower again and the stock market recaptured most of it’s prior days decline. This morning the U.S. Dollar Index is trading lower by just 0.10 cents to $77.31 and the stock markets are basically flat.
Many traders and investors are betting that the U.S. Dollar Index will not sell off sharply ahead of the upcoming G20 meeting. This is a meeting where government officials and central bankers meet and try to work out a deal to stimulate economies around the world. Lately most central banks and governments have been trying to devalue their currencies to boost exports. Now while this has caused the stock markets to inflate higher it will certainly lead to the next great bubble. In other words it will create a short term gain, however, the bubble that will be made will cause long term pain. This is what happens when we live in a quick fix society.
This is a Friday and rarely does the stock market decline sharply on a Friday. Now that everyone knows that the stock markets are getting propped higher by the Federal Reserve and other central banks around the world traders are reluctant to aggressively sell short. Therefore, if and when the stock market does decline there will not be any short sellers to buy back the market. Short sellers are always the first buyers of the stock market as they cover their trades helping to put a floor in on the market at some point.
Stay tuned and keep one eye on the U.S. Dollar Index at all times. If the inflation rally stops taking place and the U.S. Dollar Index catches a bid higher this propped up stock market can and will turn south very quickly. As for today the people behind the propping don’t want to cause panic over the weekend especially ahead of the G20 meeting. They also want the public to go out and spend money as consumer spending accounts for 70.0 percent of the GDP in the United States. Watch for a flat Friday today.
Nicholas Santiago
Chief Market Strategist
www.InTheMoneyStocks.com
