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Will US Equity Weakness of Last Few Days Continue?
Old 11-10-2010, 08:24 AM   #1
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Will US Equity Weakness of Last Few Days Continue?

I'd say yes, if the dollar continues its recent rebound. I noticed that the EURO/USD ratio is back below 1.40- today around 1.38. (That is almost a 4% fall in only the last few days) The US equity rally from late summer has correlated almost prefectly with the USD fall. ( I used $/euro as a proxy for trading partners with freely traded currencies.)

Interestingly, the buck stopped going down and the US equities stopped going up when G20 met and suggested that maybe they don't like L'il Ben and his QE2 plans as well as Krugman and our local cheerleaders do. In fact, it appears that they might have had enough of our cleverness and have some cleverness of their own to demonstrate.

Often counter- trend currency moves of this magnitude do persist for a while.


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Old 11-10-2010, 08:38 AM   #2
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It could be the market is taking a rest from its recent gains. But it does appear to be a fragile market. There has been some good news out in past few days and the market has gone down.

Sentiment is approaching bearish territory.
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Old 11-10-2010, 08:41 AM   #3
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Since the crash of 2008-09, the equity markets have had unusually high direct and inverse correlation to other supposedly less correlated assets. There has been a very strong inverse correlation between the US stock market and the USD. There has been an even stronger direct correlation between the US stock market and oil prices.
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Old 11-10-2010, 12:13 PM   #4
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Given the overreaction on almost all fronts to QE2, it wouldn't be a huge surprise to see a bit of an unwind. I've observed the same thing Dex has, that the market has been trading lower on good news. Seems overbought. But as long as the good news keeps coming, and I think it will, I don't really care if we're a little ahead of ourselves at the moment.
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Old 11-10-2010, 12:21 PM   #5
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All the news shows are saying QE2 will put the dollar back down. Also, I happened to stumble on Cramer last night. I normally don't watch his show but I saw he was starting an "it's a real bull market" talk so I stayed with it for a few minutes. He showed 5 different charts that align when a bull has legs and they all aligned.

I choose to embrace his stats rather than Dex's
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