This week the major stock indexes have traded sharply higher. The Dow Jones Industrial Average (DJIA) has staged four consecutive winning session. The last time the DJIA has rallied for four consecutive sessions we have to go back to late June. Today is also options expiration which is also part of the reason for the rally. When there are too many put options in the market around expiration the institutions will usually take stocks the other way, in case higher. The real reason for the rally is actually very simple, it is the decline in the U.S. Dollar Index. When the U.S. Dollar Index pulls back the major stock indexes will inflate and trade higher.
Since Monday morning, the U.S. Dollar Index (DX Z1) has sold off very sharply trading down by $1.29 to $77.03 a share. While this may not seem like much of a pullback it is really a big move when it comes to the U.S. Dollar Index. The U.S. Dollar Index also effects stocks intra-day when it declines. Leading commodity and energy stocks will often rally and trade higher on any U.S. Dollar Index pullback. Traders can follow stocks such as Southern Copper Corp (NYSE:SCCO), AK Steel Holdings Corp (NYSE:AKS), BHP Billiton Ltd (NYSE:BHP), and Rio Tinto plc (NYSE:RIO) to see how these leading stocks will trade inverse to the U.S. Dollar Index intra-day. Traders should remember that the major stock indexes will also inflate higher when the U.S. Dollar Index declines, that can easily be seen by comparing a dollar chart with the S&P 500 or the Dow Jones Industrial Average. The action in the U.S. Dollar Index is what moves the markets.