Earlier this year, we took some positions in UUP (bullish dollar), as its price crossed its trend line to the upside (see arrow in chart). After the high was made in June, we subsequently got stopped out (at a small profit) as the dollar got clobbered and headed south again.
This reversal clearly supported the stock market as the dollar and the market, as represented by the S&P; 500, remain locked in an inverse relationship, as this 1-year chart shows:
Since the beginning of November, UUP has been in an upswing again causing weakness in the markets. The current momentum figures look as follows:
With its price is still hovering -2.09% below its long-term trend line, this is not considered a buy yet. But, as we’ve seen recently, sentiment can change in a hurry.
It only takes some more bad news in regards to the European debt saga, or a sudden act of madness by the North Koreans, and the dollar will surge, while the stock market will head the other way.
In that sense, watching the direction of UUP, will give you some idea as to what’s in store for stocks.
Disclosure: No positions