Today is a perfect example of why traders should use charts and not follow the news. When the April new homes sales report was released it was better than expected increasing by 3.3. percent. The median prices were up by 0.07 percent, however, the SPDR S&P 500 ETF (NYSEARCA:SPY) ticked lower after the news. Does this make sense? Of course not, the stock market only cares about the action in the U.S. Dollar Index. When the U.S. Dollar Index increases the major stock indexes will generally deflate and trade lower. You see, a stronger housing market will cause the U.S. Dollar index to strengthen as it shows the U.S. economy is improving. This is how good news becomes bad news.
It is still important to remember that the stock market participants that can move markets (institutional traders) are still addicted to quantitative easing or easy monetary policy. Plain and simple, the people that move markets want more money creation to devalue the U.S. Dollar. When the dollar gets diluted it causes inflation and the stock markets around the world will trade higher. That will not happen when the U.S. Dollar Index trades higher, equities and commodities will deflate and trade lower.
In the 1990’s, the major stock indexes would rally when the U.S. Dollar Index was strong. Unfortunately, ever since the NASDAQ Composite bubble popped in the 2000 the only way to get the major stock indexes higher has been to drop the U.S. Dollar Index. Hopefully, one day a stronger dollar will be viewed as a positive to the institutional traders. After all, when the dollar is strong all the goods that people use everyday becomes cheaper. Just look at how much gasoline has declined over the past few weeks. The United States Gasoline Fund (NYSEARCA:UGA) has declined lower by more than $8.00 since April 3, 2012, at that time the UGA traded as high $58.88 a share. Today, the UGA is trading lower by 0.29 cents to $50.64 a share. Everyone in the United States uses and needs gasoline so lower prices are obviously better for us all. This is just one example of having a strong U.S. Dollar.
So at this time, good news is bad news and bad news is terrible news for the stock market. Right now, the stock market needs the dollar to decline if it is going to trade and inflate higher. On the flip side, as long as the U.S. Dollar is stronger the goods that people use everyday such as gasoline, food, and other commodities will go lower which is a positive for most Americans. Look at a chart of the the United States Oil Fund (NYSEARCA:USO), and the iPath DJ-UBS Copper TR Sub-Idx ETN (JJC) and you can see how these commodities have fallen recently. This is just the way it is at this time.