Possible Divergence in the Dollar & Market

I have been paying attention to the Dollar index for the past 2 weeks and one thing I have noticed despite the market strength, is that the dollar is hanging tough. I still feel as though we can have a end-of-year rally even if the dollar was to not sell-off. I think a breakout over the $DX_F ~80 level would make it hard for the market to rally, but as long as we stay range-bound (which is very possible especially with all the Euro $EURUSD news), I think a rally could be fully sustainable.

Why do I think a divergence can happen? Because I am already seeing signs of it. The market has rallied and been in “buy the dip” mode since the Thanksgiving low, yet the dollar has just stayed mostly flat.

Here is what I am seeing.

The Chart

Here is a candlestick chart of the  Dollar Futures ($DX_F) with a line chart of the S&P 500 ($SPX). As you can see, over the past 3-4 months, when the dollar has rallied, the market has sold off, and they both peaked and based practically concurrently. However, as you can see in this latest rally, the dollar relatively did not sell off that much. And as you can see, over the past week or so, as the market remained in “buy the dip mode”, the dollar just hung out. I think we can see a range between 77.75 ish to 79.75 over the next month in the Dollar.

 

Tags: $USDX $DX_F $SPX $SPY $DJIA $UUP

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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